Investing in suppliers to reduce risk. A conceptual model and an attempt of quantitative assessment

Suppliers play a key role for the success of a company, whose performance can be greatly improved by the definition of an effective purchasing strategy. An even more relevant factor to be considered in the strategy definition process is the risk related to the inbound flows. Thus, the aim of this paper is twofold: first, a conceptual model providing a comprehensive description of the relationships between company performance, supply risk and the strategies available to reduce impact or occurrence probability of risky events is presented. Secondly, a two-stage multi-period stochastic programming model is proposed, aiming at providing some managerial insights about the advantage of undertaking supplier development investments in order to increase supplier reliability and reduce supply risk.