A stochastic decision model for strategic supplier relationship portfolio management

Abstract

Management of a portfolio of strategic supplier relationships is complicated by their dynamism, uncertainty, information vagueness, significant profit impact, long–term orientation, substantial switching cost, and the interdependency among alternatives. To address this challenge, this paper first suggests a three–layer framework for strategic supplier relationship portfolio management. It then proposes a fuzzy binomial tree approximation–based stochastic model to analyse relationship dynamics and the value of a supplier relationship portfolio, taking into account both randomness and fuzziness uncertainty. Furthermore, it develops a decision model for supplier relationship portfolio configuration and adaptive development planning. Numerical examples are provided and some managerial implications are discussed.