Research On Optimal Order Quantity From Multiple Suppliers And Value Of Capacity Audit

A product usually consists out of more than one part.A common strategy in the manufacturing industry is to buy these parts from suppliers,process and assemble them to a final product to sell it for profit.Therefore,a sufficient supply of parts is essential for the business model of every manufacturer.Different kind of parts are typically procured from different suppliers.A manufacturer contracts multiple suppliers to satisfy his demand of parts.Even though he obtains his parts from multiple suppliers,he pursues a sole souring strategy on part level.Making his profit by processing the parts and selling them,is crucial for the manufacturer to procure enough parts so that he can satisfy the demand of his customers.If a demand increase occurs,the manufacturer will have to increase the order quantity to an amount,which is higher than the one both sides agreed to in the original contract.Therefore,knowing the suppliers' capacities is a valuable information for the manufacturer.An option for the manufacturer to obtain the capacity information is to perform a so called "capacity audit''.He delegates some of his employees to the supplier,who estimate the factory's true capacity.This audit however,causes the manufacturer costs in form of business trip expenses.In this research the optimal order quantity for two scenarios will be determined: For a manufacturer knowing his suppliers' capacity and for a manufacturer without that information.The two scenarios will result in different total costs for the manufacturer,the "value of information''.A numerical experiment will be performed evaluating the influence of several parameters on the value of information.