Vendor selection with imprecise information is a difficult task in the management of a supply chain. In a real-life situation for a vendor selection problem, a lot of input information related to the various vendors is not known with certainty. In this paper, vendor selection is modeled as a chance-constrained problem when the right-hand-side values of the constraints are independent normal random variables. The model is able to handle the net rate of return of sales revenue as a minimizing objective with a few realistic constraints like quality level supplied by the vendors, on-time delivery level constraint, service level provided by the vendors, buyer’s demand, and under the uncertain right-hand-side values of constraints related to budget amount allocated to individual vendors. The proposed approach allows to handle the random aspects of the problem. The effect of uncertainty variation is also analyzed in the model. The results indicate that the quota-allocation of different vendors may be quite different when uncertainties are captured. At the different levels of uncertainty in the assessment of budget amount allocated to the vendors, the allocation of vendors’ quota changes. In some cases, few vendors loose their entire quota to the other vendors who had buffer capacity but have superior performance under uncertain decision parameters. The paper presents a case, which shows the effectiveness and application of the model to vendor selection in a supply chain.

Supply Chain Management (SCM) is defined as the integration of key business processes from end-users through original vendors that provide products, services, and information and add value to customers and other stakeholders (Cooper et al., 1997). The entire SCM encompasses issues like coordinating the ordering, production, inventory and distribution of supplied items from the vendors. The roles of vendors are imperative for streamlining a steady and uninterrupted SCM. The vendors should be able to augment the effectiveness of SCM to ensure consistent delivery, reducing total system cost, reducing inventories, optimizing stream of information to the entire SCM, qualities along with services of supplied resources throughout the SCM, etc. Vendor Selection Problem (VSP) is an area of tremendous important intended for an effective SCM. It deals with issues related to the selection of right vendors and their quota allocations. In designing a supply chain, a decision-maker must consider decisions regarding the selection of the right vendors and their quota allocation.