A basis for modelling the costs of supplier selection: The economic tender quantity

In this paper, we consider the decision a purchaser must make regarding the number of suppliers that should be invited 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 with the number of suppliers that are invited to tender. On the other hand, with every additional tender, the purchaser might obtain a better bid. We present a theoretical decision model, the Economic Tender Quantity (ETQ) model, that under certain conditions may assist the purchaser in finding the number of tenderers that minimises the expected total costs of the tender process, that is the sum of the expected costs of sending, evaluating and communicating, and the expected bid price. We discuss these conditions and possible extensions, as well as future research opportunities in this area.