|M.Sc Student||Yom-Tov Galit|
|Subject||A Portfolio Management Approach to Supplier Selection|
|Department||Department of Industrial Engineering and Management||Supervisor||Professor Boaz Golany|
Supplier selection is a process whereby the procurement department of a firm chooses the suppliers that will provide the firm’s raw materials. The process requires matching the firm’s requirements with the suppliers’ capabilities. The issues involved include the type of product to buy, its price, quality requirements, delivery requirements, risks, and more. The typical approach (both in the academic literature and in practice) is to choose the suppliers in a serial, greedy manner, one product at a time. This approach does not take into account potential dependencies that often exists among different products and among different suppliers. In this research we explore ways to apply methods developed in the context of portfolio management to the supplier selection problem. We thus transform the classic selection model that weighs the supplier attributes into a global approach that considers the supplier portfolio. We develop a mixed integer non-linear model that considers two types of dependencies between suppliers: dependency at the suppliers’ level and at the order level. In addition, we develop several heuristic methods, which overcome the computational complexity of the exact model. We then perform a large-scale experimental study to check the behavior of the exact model and to compare it with the heuristic methods and the conventional approach. The results indicate that significant benefits can be obtained by implementing the proposed approach.