Vendor selection criteria and methods

Coordinated supply chain management

In this review, we summarize model-based research on contracts in the supply chain setting and provide a taxonomy for work in this area. During our discussions it became clear that the field has developed in many directions at once. Furthermore, as we surveyed the Uterature, it was not obvious what constitutes a contract in this context. While the nomenclature “supply chain management” is relatively new, many of the problems that are addressed are not. In particular, mathematical models for optimizing inventory control have a long history as a significant part of the mainstream of operations research and operations management. Inventory modeling, per se, dates to the early part of the century and the ideas of a Westinghouse engineer named Ford Harris (1915). A natural issue to address first is what is meant by supply chain management (SCM) research and how it relates to the vast body of work constituting classical inventory theory.

Modeling Supply Chain Contracts: A Review

Banerjee [1] developed a joint economic-lot-size model for the case where a vendor produces to order for a purchaser on a lot-for-lot basis under deterministic conditions. The assumption of lot-for-lot bases is restrictive in nature. In this note, a more general joint economic-lot-size model is suggested and it is shown to provide a lower or equal joint total relevant cost as compared to the model of Banerjee.

“a joint economic-lot-size model for purchaser and vendor”: a comment*

In the supply-chain literature, an increasing body of work studies how suppliers can use incentive schemes such as quantity discounts to influence buyers' ordering behaviour, thus reducing the supplier's (and the total supply chain's) costs. Various functional forms for such incentive schemes have been proposed, but a critical assumption always made is that the supplier has full information about the buyer's cost structure. We derive the optimal quantity discount policy under asymmetric information and compare it to the situation where the supplier has full information.

A Supplier's Optimal Quantity Discount Policy Under Asymmetric Information

In a typical purchasing situation, the issues of price, lot sizing, etc, usually are settled through negotiations between the purchaser and the vendor Depending on the existing balance of power, the end result of such a bargaining process may be a near-optimal or optimal ordering policy for one of the parties (placing the other in a position of significant disadvantage) or, sometimes, inoptimal policies for both parties This paper develops a joint economic-lot-size model for a special case where a vendor produces to order for a purchaser on a lot-for-lot basis under deterministic conditions The focus of this model is the joint total relevant cost It is shown that a jointly optimal ordering policy, together with an appropriate price adjustment, can be beneficial economically for both parties or, at the least, does not place either at a disadvantage

A joint economic-lot-size model for purchaser and vendor

Monahan Monahan, James P. 1984. A quantity discount pricing model to increase vendor profits. Management Sci.30 June 720-726. develops a model for establishing an optimal quantity discount schedule from a vendor's viewpoint. In this note we show that this model is limited to the case where the vendor buys from another supplier. Incorporating vendor's inventory carrying costs, we develop a generalized version of Monahan's model and demonstrate its equivalence with the joint economic lot size approach suggested by Banerjee Banerjee, Avijit. 1986. A joint economic lot size model for purchaser and vendor. Decision Sci.17 Summer 292-311..

Note-On A Quantity Discount Pricing Model to Increase Vendor Profits

This paper develops a pricing model from the perspective of a supplier who produces and supplies a product to order from a single customer on a lot-for-lot basis. Assuming that the customer's ordering behavior is optimal, i.e. the customer follows his economic purchasing policy, the objective of the supplier is to determine the product's selling price, so that a specified gross profit goal is achieved. The algebraic interactions between the price of the product, the customer's EOQ and the supplier's profit level are taken into consideration during the model construction process. The concepts developed are illustrated through a numerical example, which attempts to demonstrate the usefulness of the model in setting an appropriate price for a product under the conditions described.

Avijit Banerjee

Papers

A joint economic-lot-size model for purchaser and vendor

Note-On A Quantity Discount Pricing Model to Increase Vendor Profits

A supplier's pricing model under a customer's economic purchasing policy