Unraveling quantity discounts

Fredo Schotanus, Jan Telgen and Luitzen de Boer

Omega, 2009, vol. 37, issue 3, 510-521

Abstract: We consider the situation in which a buying organization deals with a discrete quantity discount schedule offered by a selling organization. Furthermore, the buying organization can negotiate with the selling organization about the lot size and purchase price, but does not know the underlying function that was used by the selling organization to determine the quantity discount schedule. In this paper, we provide an analytical and empirical basis for one general quantity discount function (QDF) that can be used to describe the underlying function of almost all different quantity discount types. We first develop such a QDF analytically. Among other things, this QDF enables buying organizations to calculate detailed prices for a large number of quantities. We subsequently show that the QDF fits very well with 66 discount schedules found in practice. We discuss that the QDF and related indicators can be a useful tool in supplier selection and negotiation processes. It can also be used for competitive analyses, multiple sourcing decisions, and allocating savings for purchasing groups. Additionally, the QDF can be included in research models incorporating quantity discounts. We conclude the paper with an outlook on further QDF research regarding the characterization of commodity markets from a demand elasticity point of view.

Keywords: Bidding; Decision; support; systems; Forecasting; Heuristics; Operations; management (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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