Stochastic Model for Supplier Selection and Order Allocation: The Portfolio Approach – LH07-FMI SFS FLS

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Stochastic Model for Supplier Selection and Order Allocation: The Portfolio Approach – LH07-FMI SFS FLS

The objective of this research is to develop the decision support system to help companies improve their supply agility by focusing on the purchasing decisions and processes.


F.L. Smidth, Inc.

Research Team:

Manisra Baramichai, Marco A . Salaverria, Emory Zimmers, Charalambos Marangos

Universities Involved:

Lehigh University

Start Date:


End Date:



The purpose of this project is to model and analyze the purchasing decision process for commodities under conditions where demand volume and purchasing price are subject to uncertainty, investigate appropriate strategies to hedge against these uncertainties while staying agile and keeping purchasing costs at competitive levels, and develop a mathematical model that uses tangible and intangible objectives to facilitate supplier selection, contract selection decisions and order allocation
The project is focused on key processes involving logistics that impact the company’s ability to effectively serve its customers. There are two primary and interrelated areas of emphasis:
1. Evaluate and create new agile business processes to streamline logistics operations and apply bar coding (and possibly RFID) technology. Goals include maintaining the scalability of business systems and avoiding the addition of overhead labor. The project scope includes system specification, cost justification and implementation support.
2. Apply these new processes to improve productivity and revenue generation. In particular, product development is typically a bottleneck to rapid growth. Determine methods and disciplines to improve this process that are integral to the logistics system.
This project proposed a comprehensive, modular decision support system, which includes tools, models, and framework to assist companies in making three key purchasing decisions, the supplier- buyer relationship establishment, the supplier performance evaluation, and the supplier selection and order allocation.
The final deliverables include: 1) The new QFD-based model, Agile Supply Chain Transformation Matrix
(ASCTM), for determining appropriate strategy and approaches for supply chain configuration and supplier-buyer relationship establishment; 2) The comprehensive framework consisting of tools, metrics, and model structures for evaluating supplier’s agile performance; and 3) The Stochastic Supplier and Order Allocation Portfolio model (S- SOAP) for determining the purchasing decision related to supplier selection, contract establishment, and order allocation assignment under uncertainty.