Vendor selection with price breaks

Abstract

We study the problem of vendor selection where a buyer must choose order quantities to place with vendors in a multiple-sourcing network. The selection process is influenced by the price, delivery, and quality objectives of the buyer, as well as by the production or rationing constraints of the vendors. Vendors are assumed to offer price breaks which depend on the sizes of the order quantities. Each proce break schedule is characterized by two attributes: it represents either quantity discounts or surcharges, and is either cumulative (all-units) or noncumulative (incremental). We present linear and mixed binary integer programming models that provide unifying frameworks for models of vendor performance measures from the purchasing literature and models of price breaks from the Operations Research literature. We argue that our models offer viable approaches to vendor selection with price breaks because of the availability of commercial software packages for personal computers that provide flexible and efficient computational tools for solving the models. This implies that vendor selection with price breaks can be performed at the fingertips of purchasing managers.