A Procurement Decision Support System in business volume discount environments

Emergence of a new discount pricing schedule called Business Volume Discount becomes a major obstacle for procurement managers in finding the best purchasing strategy. In the context of business volume discount, a supplier offers discounts on total dollar amount of sales volume, not on the quantity or variety of the products purchased from the supplier. This paper describes a Procurement Decision Support System (PDSS) that has been successfully implemented to improve the purchasing activities of regional Bell telephone companies. In most purchasing operations, a flexible procurement plan is considered a necessity because of the uncertainties associated with product demand and procurement budget. PDSS provides this flexibility by combining two different purchasing strategies-purchasing on an annual commitment basis, and on an as-ordered basis. Although the development of the system is motivated by a particular application (procurement of transmission plug-in) in one of the regional telephone companies, the system is being used for a variety of procurement decisions involving business volume discount in the telecommunications industry. The results of the implementation indicate that cost savings of up to 15% are achieved. PDSS use is not limited to the companies in the telecommunications industry. The PDSS model is applicable to any organization having a centralized procurement operation with business volume discount.