SUPPLIER SELECTION CRITERION IN UNCERTAIN PRODUCT COST: A DYNAMIC PROGRAMMING APPROACH

Abstract

Supplier selection is very significant business problem for ensuring competitiveness on the market. A number of quantitative methods have been applied to solve this problem. In this paper a criterion to select a supplier is suggested in the cases where the product cost of the supplier varies with planned periods and is uncertain. The effect of variability on the optimal solution is illustrated with the help of a numerical example. The optimal cost for ten periods is estimated using forward dynamic programming approach. It is found that the optimal (minimum) cost increases with the variability in the product cost. One of the important finding of this study is that the supplier with less variability in product cost should be preferred.