A study on the impacts of suppliers continuous risk and quantity discount on the manufacturers inventory decisions

• Main Authors: De Pedro, Earvin Andrew B., Labor, Alejandro D., Seno, Bryan Mitchelle T.
• Format: text
• Language: English
• Published: Animo Repository 2013
• Subjects: Inventory control; Risk management.; Industrial Engineering
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/10705
• Institution: De La Salle University

This report provides an analysis of how quantity discounter affects the inventory decisions of a manufacturer facing supplier risks. The methods of analysis include using Palisade Risk Optimizer, which uses a Monte Carlo simulation, to test models facing uncertainty by generating multiple simulations and trials. The analysis derived from the simulation is used to evaluate how the inventory costs are affected by the quantity discount and suppliers risk by changing the parameters of the model. Results show that the formulated model in RiskOptimizer is logical, and the relationship of quantity discount from the suppliers risk is that the model prioritizes the allocation on supplier with relatively low reliability and buffer the quantity ordered from the suppliers. The logic of the model is that the manufacturer has an idea about the reliability of supplier then the decision is then prioritized to the one with the lowest reliability. Also, manufacturer allocates its order from the most unreliable supplier/s, so it can maximize the discount given. In terms of multiple suppliers, risk management literatures suggest the concept of allocating the orders to multiple supplier to diversify risk but from the result of the study, it was discovered that its not always the case. There were cases found where allocating to more suppliers can incur higher total costs. Lastly, the model also showed that safety stock and Reorder Point (RoP) were only significantly affected in the testing the number of suppliers available. It can now be concluded that in allocating order quantities the decision maker should first evaluate what is more important, the risk where its possible to attain stock-out or to maximize the discount offer. If the decision maker wants to maximize the discount offer then despite uncertainty he/she should allocate to the one with the lowest reliability. If the decision maker doesnt want to incur any possible stock-out then its only logical to allocate orders to the most reliable supplier because assurance is of more importance than what the decision maker could save. In terms of the internal reaction the rework acts as a factor that influences the order allocation and the total order quantity and though it has a cost component, results show that despite the rework cost it generates, it is lower than what the cost could be without it.