Sustainable Procurement
Read this article, which highlights a novel strategy for procurement. Focus on sections 1, 2, and 5 and the opening paragraphs for sections 3 and 4. The model in the paper presents a new strategy to reduce procurement costs and enhance overall procurement flexibility.
Sourcing strategy for sustainable ATO: a mathematical approach
Due to price competition, many companies are manufacturing in low-cost countries and selecting such a location by considering manufacturing costs, corporate tax rate, export incentives, the presence of key suppliers or duty-free imports, infrastructure, the political situation and skilled labour. In ATO base product are expected to be manufactured at low-cost countries/locations and final configurations as well packaging are expected to be made at the distribution point near to the customer.
Stage-1: selection of supplier for the base product
In this proposed model, shown in Figure 1, we assumed that the base product is manufactured at the manufacturing site and stored at the centralized warehouse in generic form. Once order is arrived, base product is shipped with the bill of material (BOM), shown in Figure 2, to retailer's site where auxiliary part/module is prepared and assembled. In closed loop supply chain, shown in Figure 1, used products are collected from the collection site and sent to the disassemble site where products are disassembled completely or partly. After processing, disassembled parts/sub-assembly is sent to the manufacturer site where they are reused as new parts/sub-assembly. Disassembly cost varies with level of disassembly. Hence, up to a certain level product should be disassembled.
Figure 1 The proposed 2-stage supply chain model for sustainable ATO.
Figure 2 The bill of material. Source: Elaborated by the author.
![](https://learn.saylor.org/pluginfile.php/5619131/mod_book/chapter/49981/f2.jpg)
In
the proposed AHP model, shown in Figure 3, flexibility encompasses
volume flexibility, routing flexibility, material handling flexibility,
machine flexibility, operation flexibility, expansion flexibility,
process flexibility. Proposed AHP model encompasses three main criteria
to select suppliers for the base product through the sustainable
procurement process.
Figure 3 The AHP model of supplier selection for the base product.
Deterministic order allocation model for the base product
The following assumptions are considered to prepare objective functions for supplier selection.
Assumptions
- Multiple items are purchased from selected suppliers.
- Quantity discounts are not taken into consideration.
- No shortage of item is allowed for any supplier.
- Demand of base product for the planned horizon is constant and known with certainty.
= the purchase cost of product j from ith supplier.
= the transportation cost of product j from ith supplier.
= the overall performance index of ith supplier.
= the ordering cost of jth product from ith supplier.
= the reliability of ith supplier.
= the order quantity of product j to ith supplier.
= the percentage late delivery of product j from ith supplier.
= the capacity of ith supplier for jth product.
= the demand for jth product
= the handling cost per ton of product j.
=Total allocated budget for all products.
= percentage of jth product disposed at disposal site
= Level of disassembly of jth product at disassembly site
= GHG emission factor per weight unit distance due to the use of transportation mode.
= the distance of ith supplier from the manufacturing/retailing site
- alpha = probability value of chance constraint
= 1,2,3……… n of suppliers
=1,2,3……. m no of products
The total cost of purchase (TCP) consists of purchase, transportation, order/setup, and holding cost.
Min TCP:
(11)
In
the second objective function total value of reliable purchase (TVRP)
is considered instead of total value of purchase (TVP) proposed by
Ghodsypour & O'Brien (1998). The reliability of supply, , of each supplier is obtained from supplier's reliability measurement data sheet, Table 2, to form TVRP equation.
Table 2 Supplier data sheet.
Name | Cost (INR) | Ordering Cost (INR/tonne) |
Capacity (Tonne) |
% late delivery | Distance (Km) |
Mode of Transport | |||
---|---|---|---|---|---|---|---|---|---|
Prod A | Prod B | Prod A |
Prod B |
Prod A |
Prod B |
||||
Supp. 1 | 100 | 150 | 2000 | 3000 | 1000 | 2000 | 0.2 | 190 | 1. By HGV 2. 100 Km by rail and 90 Km by HGV |
Supp. 2 | 102 | 149 | 2000 | 3000 | 1000 | 1500 | 0.15 | 200 | 1. By Large container |
Supp. 3 | 101 | 150 | 2000 | 3000 | 1000 | 1500 | 0.2 | 180 | 1. By HGV |
Supp. 4 | 100 | 151 | 2000 | 3000 | 1000 | 1500 | 0.15 | 200 | 1.160 Km by rail and 40 Km by HGV. 2. By HGV |
Supp. 5 | 103 | 152 | 2000 | 3000 | 1000 | 1500 | 0.1 | 240 | 1.200 Km by rail and 40 Km by HGV. |
Supp. 6 | 102 | 150 | 2000 | 3000 | 1000 | 2000 | 0.2 | 240 | 1. By HGV 2.200 Km by rail and 40 Km by HGV. |
Subject to
Stage-II: supplier selection for auxiliary parts
![](https://learn.saylor.org/pluginfile.php/5619131/mod_book/chapter/49981/f4.jpg)
Mathematical model for stochastic demand
Subject to