Shifting orders among suppliers considering risk, price and transportation cost

Supplier order allocation is an important supply chain decision for an enterprise. It is related to the supplier's function as a raw material provider and other supporting materials that will be used in production process. Most of works on order allocation has been based on costs and other supply chain performance, but very limited of them taking risks into consideration. In this paper we address the problem of order allocation of a single commodity sourced from multiple suppliers considering supply risks in addition to the attempt of minimizing transportation costs. The supply chain risk was investigated and a procedure was proposed in the risk mitigation phase as a form of risk profile. The objective including risk profile in order allocation is to maximize the product flow from a risky supplier to a relatively less risky supplier. The proposed procedure is applied to a sugar company. The result suggests that order allocations should be maximized to suppliers that have a relatively low risk and minimized to suppliers that have a relatively larger risks.