A Procurement Decision Support System in Business Volume Discount Environments

Amir A. Sadrian and Yong S. Yoon
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Amir A. Sadrian: Bell Communications Research, Red Bank, New Jersey
Yong S. Yoon: Korea Telecom, Seoul, Korea

Operations Research, 1994, vol. 42, issue 1, 14-23

Abstract: Emergence of a new discount pricing schedule called Business Volume Discount becomes a major obstacle for procurement managers in finding the best purchasing strategy. In the context of business volume discount, a supplier offers discounts on total dollar amount of sales volume, not on the quantity or variety of the products purchased from the supplier. This paper describes a Procurement Decision Support System (PDSS) that has been successfully implemented to improve the purchasing activities of regional Bell telephone companies. In most purchasing operations, a flexible procurement plan is considered a necessity because of the uncertainties associated with product demand and procurement budget. PDSS provides this flexibility by combining two different purchasing strategies—purchasing on an annual commitment basis, and on an as-ordered basis. Although the development of the system is motivated by a particular application (procurement of transmission plug-in) in one of the regional telephone companies, the system is being used for a variety of procurement decisions involving business volume discount in the telecommunications industry. The results of the implementation indicate that cost savings of up to 15% are achieved. PDSS use is not limited to the companies in the telecommunications industry. The PDSS model is applicable to any organization having a centralized procurement operation with business volume discount.

Keywords: decision support systems: procurement analysis; inventory/production; policies; pricing: business volume discounts; programming; linear; integer; applications: mixed integer programming model for procurement problem (search for similar items in EconPapers)
Date: 1994
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