Balancing Data Acquisition Benefits and Ordering Costs for Predictive Supplier Selection and Order Allocation

Abstract

The strategic selection of suppliers and the allocation of orders across multiple periods have long been recognized as critical aspects influencing company expenditure and resilience. Leveraging the enhanced predictive capabilities afforded by machine learning models, direct lookahead models—linear programming models that optimize future decisions based on forecasts generated by external predictive modules—have emerged as viable alternatives to traditional deterministic and stochastic programming methodologies to solve related problems. However, despite these advancements, approaches implementing direct lookahead models typically lack mechanisms for updating forecasts over time. Yet, in practice, suppliers often exhibit dynamic behaviours, and failing to update forecasts can lead to suboptimal decision-making. This study introduces a novel approach based on parametrized direct lookahead models to address this gap. The approach explicitly addresses the hidden trade-offs associated with incorporating forecast updates. Recognizing that forecasts can only be updated by acquiring new data and that the primary means of acquiring supplier-related data is through order allocation, this study investigates the trade-offs between data acquisition benefits and order allocation costs. An experimental design utilizing real-world automotive sector data is employed to assess the potential of the proposed approach against various benchmarks. These benchmarks include decision scenarios representing perfect foresight, no data acquisition benefits, and consistently positive benefits. Empirical findings demonstrate that the proposed approach achieves performance levels comparable to those of decision-makers with perfect foresight while consistently outperforming benchmarks not balancing order allocation costs and data acquisition benefits.

Keywords

• supply chain risk management
• supplier selection
• order allocation
• machine learning
• continuous training