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Multi-period supplier selection under price uncertainty

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Journal of the Operational Research Society

Abstract

We consider a problem faced by a procurement manager who needs to purchase a large volume of multiple items over multiple periods from multiple suppliers that provide base prices and discounts. Discounts are contingent on meeting various conditions on total volume or spend, and some are tied to future realizations of random events that can be mutually verified. We formulate a scenario-based multi-stage stochastic optimization model that allows us to consider random events such as a drop in price because of the most favoured customer clauses, a price change in the spot market or a new discount offer. We propose certainty-equivalent heuristics and evaluate the regret of using them. We use our model for three bidding events of a large manufacturing company. The results show that considering most favored customer clauses in supplier offers may create substantial savings that may surpass the savings from regular discount offers.

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Authors and Affiliations

  1. Bilkent University, Ankara, Turkey

    Alper Şen & Hande Yaman

  2. Hewlett-Packard Laboratories, Palo Alto, USA

    Kemal Güler & Evren Körpeoğlu

Authors
  1. Alper Şen
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  2. Hande Yaman
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  3. Kemal Güler
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  4. Evren Körpeoğlu
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Correspondence to Alper Şen.

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Şen, A., Yaman, H., Güler, K. et al. Multi-period supplier selection under price uncertainty. J Oper Res Soc 65, 1636–1648 (2014). https://doi.org/10.1057/jors.2013.111

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  • DOI: https://doi.org/10.1057/jors.2013.111

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