Optimal acquisition policy with quantity discounts and uncertain demands

• Published in: International journal of production research Vol. 47; no. 9; pp. 2409 - 2425
• Main Authors: Zhang, Guoqing, Ma, Liping
• Format: Journal Article
• Language: English
• Published: Abingdon Taylor & Francis Group 01.01.2009; Taylor & Francis; Taylor & Francis LLC
• Subjects: Applied sciences; Decision making models; Decision theory. Utility theory; Discounts; Exact sciences and technology; Firm modelling; Integer programming; Inventory control, production control. Distribution; Logistics; Mathematical models; mixed-integer nonlinear programming; Operational research and scientific management; Operational research. Management science; Purchasing; quantity discount; Studies; supplier selection; Uncertainty; Procurement; Integration; Discount; Decision making; supplier selection; Optimal policy; Mixed integer programming; Subcontracting; Multiple production; mixed-integer nonlinear programming; uncertainty; Modeling; Production management; Uncertain system; Algebraic system; Quantity discount; Profit; Purchases; Multiple supplier
• ISSN: 0020-7543; 1366-588X
• DOI: 10.1080/00207540701678944

We study the acquisition policy decision problem for a supply network involving one manufacturer and multiple suppliers. The manufacturer produces multiple products under uncertain demands and each supplier provides price discounts. The problem is to determine the manufacturer's acquisition policy and production levels so as to maximise the manufacturer's expected profit, subject to both the manufacturer's and suppliers' capacities. We present a mixed integer nonlinear programming (MINLP) formulation of the problem, for both single- and multiple-sourcing procurement policies. General algebraic modeling system (GAMS) and its solvers, combining external integration functions, are employed to solve the complex MINLP problem. The preliminary computation results and managerial analysis are reported.