Authors: Charles L. Munson
Addresses: Department of Management and Operations, Washington State University, P.O. Box 644736, Pullman, WA, 99164–4736, USA
Abstract: This paper provides a tool for managers to help them determine which items at which sites should be procured under some form of centralised purchasing scheme. Seven cost categories are analysed under three purchasing scenarios: (1) decentralised purchasing, (2) centralised purchasing, and (3) centralised pricing with decentralised purchasing. Numerical experimentation suggests that, most often, a hybrid combination of the three purchasing scenarios is best. For large problems, calculation of the optimal configuration becomes computationally cumbersome; therefore, an efficient heuristic ranking solution procedure is developed that performs well under experimentation. The relative simplicity of the heuristic allows managers to readily implement the model in this paper in order to help them make the important strategic decision regarding their degree of purchasing centralisation.
Keywords: centralised purchasing; inventory; quantity discounts; heuristics; computational analysis; procurement management; decentralised purchasing; centralised pricing; purchasing policy.
International Journal of Procurement Management, 2007 Vol.1 No.1/2, pp.117 - 143
Published online: 10 Oct 2007 *Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article