Risk-averse supplier selection and order allocation problems under supplier disruption in a dominant supplier market

This study addresses supplier selection and order allocation problems under the risk of supplier disruption. Motivated by real-world supply chains characterized by supplier concentration, this study introduces the concept of a dominant supplier market into the supplier selection and order allocation framework. Conditional Value-at-Risk (CVaR) is incorporated to capture risk-averse procurement decisions. Single-level optimization models are developed, including a risk-neutral model, a CVaR-based risk-averse model, and a bi-objective model that balances risk-neutral and risk-averse objectives. The framework is then extended to a bi-level optimization model in which a dominant supplier strategically sets prices while anticipating the retailer's response. Computational experiments demonstrate the impact of disruption risk and supplier dominance on procurement decisions. While existing managerial insights in the literature have primarily focused on retailers' procurement strategies, this study provides decision support for both the dominant supplier and the retailer in selecting appropriate strategies in a dominant supplier market.