Integration of Supplier Selection with Order Allocation

2 Integration of Supplier Selection with Order Allocation 

The supplier ranking is not sufficient for allocating purchase quantities, as it does not consider other purchasing related issues such as supplier capacity and the fixed cost of using a supplier. In addition, while the supplier s unit price may be included in the ranking in relative terms, it does not allow for the buyer s purchase budget 

Consider a buyer with a purchase budget B who needs to allocate a purchase quantity of R units of a product to n suppliers. Assume that using the AHP ranking procedure, discussed earlier, the weight of the supplier i (i e /) is determined to be Wf. This supplier charges a unit price p,- and has a production capacity m, m, R). 

Assuming Qf to be the amount bought from supplier i, the value of purchase from this supplier can be expressed as WjQj. Define y,- = 1 if supplier / is used, 0 otherwise. 

Qi Mfyn i I implies that the g, must not exceed the supplier s capacity, which will exceed zero only if the supplier is used (y, = 1) 

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