Luitzen de Boer (former Assistant Professor)

Boer, L. de, Dijkhuizen, G.C. van and Telgen, J., How to reduce the costs of supplier selection: the Economic Tender Quantity, Journal of Operational Research Society, vol. 51, no. 10, 2000 (abstract)

In this paper we consider the decision a purchaser must make regarding the number of suppliers that should be asked to submit a tender for a certain purchase. On the one hand, the costs of sending invitations to tender, the costs of evaluating the tenders received and the costs of communicating the outcome to the suppliers that were not selected, all increase as more suppliers are invited to tender. However, obviously, with every additional tender, the purchaser might obtain a better bid. We present a normative decision model, the Economic Tender Quantity (ETQ) model that aids the purchaser in finding the number of tenders that minimises the expected total costs of the tender process, i.e. the sum of the expected costs of sending, evaluating and communicating and the expected bid price. As far as we know, no such model has been developed yet although it supports a decision that must be made daily by purchasers and others involved in the selection of suppliers. In addition to the formal definition of the ETQ model, we present a practical example of its application. Finally, we discuss possible limitations, extensions as well as areas for further research.

 

Key-words: tender quantity, optimisation, purchasing