Multi-level decision making for chain stores including GPOs (group purchasing organizations)

Abstract

This paper extends the application of GPOs (group purchasing organizations) to the chain store industry. We consider a supply chain consisting of several suppliers, a GPO, and several retailers. The GPO plays the role of a coordinator (or head of the retail chain stores) in the procurement affairs of the retailers. In the defined problem, we simultaneously focus on the decision-making of the GPO and all the retailers. Accordingly, a multi-level mathematical programming model is presented that determines the decisions of the GPO that are related to pricing policy and dealing with the suppliers, and the decisions of the retailers that are relevant to using the GPO services and contracting with the suppliers. To solve the developed model, a new solution procedure is established that surpasses the existing methods in the literature, with the help of which interesting results are obtained and managerial analyses are performed. Besides, the prevalent challenges about the functioning of the GPO and its efficiencies are examined and definitive responses are provided to critics of GPOs.