Robust supplier selection in the presence of uncertain demand

This chapter investigates the problem of supplier selection and allocation in the process of outsourcing under an uncertain environment for the purpose of minimizing the buyer's total expenditure. At the start of each planning period, the buyer predicts the market demand associated with each product. The chapter models the supplier selection and allocation problem in the presence of uncertain demand using a stochastic programming formulation and use a new robust optimization approach to derive the robust solution scheme in an uncertain environment. The obtained results are effectively less sensitive to any realization of uncertainty. The buyer's total expected expenditure in outsourcing process varies with his attitudes towards risk and penalty parameters measuring absolute deviation in demand. The chapter investigates the case in which the buyer is planning to take different future demand scenarios associated with different products into account in its strategic planning, while the candidate suppliers release their quoted prices in each scenario.