Enhancing Supply Decisions through the Use of Efficient Marginal Costs Models

Abstract

SUMMARYSupply managers are often faced with the challenge of making effective purchasing decisions in acquiring production materials, supplies, and capital equipment. The complexity of the procurement process has mainly intensified due to the increased emphasis on delivery performance, product quality, and technical service apart from traditional cost measures This article presents a set of multi‐criteria models for estimation of efficient marginal costs of supplier outputs, which provide critical information to managers on the values of outputs. The marginal costs are utllized for making effective purchasing decisions by setting optimal output prices for negotiation on supplier bids. The models are tested on an actual dataset of suppliers.