A framework for supplier selection in global sourcing considering supply chain costs and risks

In additional to quantitative risks like transportation, global sourcing risks includes qualitative factors like business culture, which are extremely difficult to quantify. In this paper, we propose a quantitative framework to measure the supply chain management risks associated with global sourcing. A Bayesian Belief Network based framework is proposed to estimate the probability of risks by considering subjective information. The Bayesian networks allow us to combine numerical and categorical data and convert them to a common probabilistic framework. These risk probabilities are then transformed into numerical scores as risk indexes. In the next step, a Multiple Attribute Utility Theory based model is used to evaluate the supplier alternatives by considering the risk indexes and other supply chain cost parameters. A sensitivity analysis is performed to understand the impact of market volatility on the sourcing decisions. An illustrative example is presented to demonstrate the application of the proposed model. Copyright, American Society for Engineering Management, 2011.