Integrated Analytic Hierarchy Process and Mixed Integer Linear Programming for Supplier Selection in Steel Industry with Price Discount

摘要

Supply chain performance depends on how well the organizations can manage important functions like procurement, manufacturing, and distribution. However, looking at these functions in silos will not yield much benefit. Integration of planning processes involving different functions of supply chain namely procurement, production and distribution has proved to be more effective than decoupled planning. In this paper, we address the problem of integrated planning of upstream operations related to procurement of raw material from various suppliers with the downstream function of distribution based on the customer demand. We apply an integrated procedure involving Analytic Hierarchy Process (AHP) and Mixed Integer Linear Programming (MILP). The impact of supplier selection on the total profit of the supply chain has been studied in this work. AHP is used to analyse the qualitative factors related to suppliers like quality of raw material, location, facilities etc. The quantitative factors like cost, capacity, demand etc. are incorporated through MILP. The model selects high rated supplier and studies its impact on the integrated supply chain in an effort to minimize the overall cost. This integrated supply chain model helps to study the effect of supplier selection on the overall supply chain profitability. The integrated model is applied to a steel industry setting. This model will enable the supply chain planners in a steel supply chain to take informed decisions regarding the supplier selection and procurement of material.