Supplier selection under failure risk, quantity and business volume discounts

•Supplier selection and order allocation under supplier failure risk.•Model includes quantity and business volume discounts.•Exact model: Solves realistic problem sizes to optimality.•Improves previously published heuristic from 2013 by 4%.

We consider a supply chain problem with simultaneous supplier selection and order allocation for multiple products. The suppliers offer quantity and business volume discounts, and they are subject to failure. The buyer aims at minimizing total expected costs. We consider both all-units and incremental quantity discounts and find optimal solutions through mixed-integer linear programming. We discuss the trade-off between economies of scale and failure risk and show the cost reduction of our exact approach compared to a previously proposed heuristic.