Computers & Operations Research 34 (2007) 3682 – 3690 www.elsevier.com/locate/cor Sourcing with random yields and stochastic demand: A newsvendor approach Shitao Yang a , Jian Yang b, ∗ , Layek Abdel-Malek a Stillman School of Business, Seton Hall University, South Orange, NJ 07079, USA b Department of Industrial and Manufacturing Engineering, New Jersey Institute ofTechnology, Newark, NJ 07102, USA Available online 9 March 2006 Abstract We studied a supplier selection problem, where a buyer, while facing random demand, is to decide ordering quantities from a set of suppliers with different yields and prices.We provided the mathematical formulation for the buyer’s profit maximization problem and proposed a solution method based on a combination of the active set method and the Newton search procedure. Our computational study shows that the proposed method can solve the problem efficiently, and is able to generate interesting and insightful results that lead us to various managerial implications. Scope and purpose In today’s globally competitive environment, decision makers in supply chains face numerous challenges particularly regarding the selection of suppliers or outsourcing partners. To assist in this endeavor, we examined a double-layered supply chain where a buyer facing the end users has the option of selecting among a cohort of suppliers. The available suppliers may have different yield rates and unit costs. The buyer has to decide, given the stochastic nature of the problem’s governing parameters, whether or not to order from each supplier, and if so how much. We developed a ‘newsvendor-style’model for the problem, and proposed a solution algorithm for it. Numerical studies were performed to provide some insights for supplier selection and order quantity decisions.  2006 Elsevier Ltd. All rights reserved. Keywords: Supply chain; Supplier selection; Newsvendor; Non-linear programming 1. Introduction Supply uncertainty, especially in the form of random yields, is a common occurrence in a wide range of manufacturing and service sectors [1]. Consider a fruit juice producer who has to select among several fruit farms. Each farm will deliver the requested quantity of fruits. However, the yield of juice will vary from batch to batch depending on a slew of factors that affect the growing conditions. Another example is of a tile manufacturer who has to select among several land fills for the supply of recyclable materials. Upon delivery, although the tonnage is exactly what was asked for, the conversion rate from the supplied materials to the substances needed for tile manufacturing will vary from delivery to delivery due to the random nature of the disposables [2]. ∗ Corresponding author. Tel.: +1 973 596 3658; fax: +1 973 596 3652. E-mail addresses: yangst@shu.edu (S. Yang), yang@adm.njit.edu (J. Yang), malek@njit.edu (L. Abdel-Malek). 0305-0548/$ - see front matter  2006 Elsevier Ltd. All rights reserved. doi:10.1016/j.cor.2006.01.015