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This paper attempts to address three key objectives. The primary aim is to enhance sourcing strategy for a centralized and coordinated multitier multiple suppliers networks with uncertain demand and supplier failure risks. The second objective is to enumerate all possible practical supplier(s) failure scenarios and quantify expected loss of demand cost. Finally, the work illustrates statistical experimentation to identify “influential” variables that can significantly impact the expected supply network and loss costs.

A seven-step solution framework is proposed to derive an optimal sourcing strategy for the specific network configuration with varied supplier failure scenarios. Five distinct models are formulated to address all possible scenarios of supplier failure events. Mixed-integer nonlinear programming technique is used to derive expected supply network cost and loss cost. The solution framework is verified using a real-life case.

A cross-case analysis indicates that an increase in suppliers' failure risk (SFR) probabilities or customer demand rate increases the expected loss of demand costs for a multitier supply network. Besides, an increase in unit component prices increases the expected supply network cost.

A two-tier automotive supply network for a single product is considered for all case studies.

The enhanced strategy can facilitate practitioners enumerate different supply network failure scenarios and implement the best solution.

There is no evidence of earlier research to derive optimal sourcing strategy for a centralized, coordinated multitier multiple supplier's network, considering demand uncertainties and SFR.

Multiple stages of procurement for a product in a supply chain (SC) altogether form a “multi-Tier” supply network. The purpose of this paper is to develop and verify a systematic solution approach to ascertain the realistic cost advantage of a coordinated centralized sourcing strategy as compared to an isolated decentralized sourcing strategy for a multi-tier supply network under demand uncertainty.

The proposed systematic solution approach consists of seven steps to compare and contrast the cost advantage of a centralized coordinated sourcing strategy over a decentralized stage-wise sourcing strategy for a multi-tier supply network. A real-life automotive industry case analysis of two distinct products provides sufficient empirical evidence on the expected cost advantage of centralized coordinated sourcing strategy under demand uncertainty.

The case analysis affirms the practicability of the proposed seven-step solution approach to determine the realistic cost advantage of coordinated sourcing.

The scope of this research is restricted to a single product and two-tier supply network analysis. This research work also considers a restrictive assumption of negligible coordination cost.

The suitability of the proposed solution approach is verified using real-life case examples. This research provides theoretical insights and factual evidence to SC practitioners, so as to adopt a centralized sourcing strategy in a varied manufacturing environment.

There is no evidence of a systematic step-by-step solution approach to determine the cost advantage of a coordinated sourcing strategy over an isolated decentralized sourcing strategy for a multi-tier supply network under demand uncertainty.