A Basis for Modelling the Costs of Supplier Selection: The Economic Tender Quantity

Boer, L. de; Dijkhuizen, Gerhard van; Telgen, J.

doi:10.2307/253925

Cited by 8 publications

(18 citation statements)

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“…In this paper we propose an alternative approach which differs in a number of ways from the existing formal analyses by Barua et al (1997), De Boer et al (2000) and Berger et al (2004). In fact, our approach includes three heuristics, all based on the same principles but varying slightly in terms of the precision of input information required from the purchaser.…”

Section: Presentation and Discussion Of Relevant Literaturementioning

confidence: 99%

“…Still, while extremely simple and easy to communicate and enforce, these heuristics are – as explained earlier on in this paper – based on very crude simplifications of reality. The ETQ model developed in De Boer et al (2000) already addressed this and showed that only using the expected value of the contract as the basis for deciding how many suppliers should be invited to bid, may lead to poor decisions if one considers each case of supplier selection separately. After all, if the relative differences between suppliers’ bids are negligible, asking for more bids will hardly help.…”

Section: Discussionmentioning

confidence: 99%

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Procedural rationality in supplier selection

Boer

2017

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Purpose The purpose of this paper is to present three heuristics for choosing supplier selection criteria. By considering the balance between the expected relative effort and benefit of using different selection criteria, the heuristics suggest which criteria should be prioritized. The heuristics serve to develop our understanding of the search and evaluation heuristics used in supplier selection and to facilitate further research. Design/methodology/approach The research is primarily theoretical, yet draws on empirical studies of supplier selection. The theoretical basis is Simon’s notion of procedural rationality (Simon, 1976). The author makes the general notion of procedural rationality more concrete for supplier selection by formally describing three heuristics for choosing selection criteria. The heuristics share the same logic but differ in terms of the precision of the input information required from the purchaser. The paper provides illustrations of the heuristics. Findings It appears that procedural rationality can be specified for the process of designing the supplier selection process by explicitly recognizing the cost and value of selection criteria. There is no one way of doing this, but at the most basic level, it requires an ordinal ranking of criteria. Already such a rudimentary, qualitative, assessment can help identifying suitable criteria. The heuristics developed appear compatible with established approaches for the subsequent selection of suppliers. Originality/value The paper addresses the early stage of supplier selection which has been largely ignored in the literature.

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Section: Presentation and Discussion Of Relevant Literaturementioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

Procedural rationality in supplier selection

Boer

2017

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“…For invited bidding, the question arises of how many suppliers should actually be invited to submit a bid. This question has already been investigated in a quantitative way (De Boer, Van Dijkhuizen & Telgen, 2000;Lansdowne, 1996). Inviting more suppliers will increase the costs of the whole evaluation process as more hours need to be spent on the tenders (tendering or evaluation costs).…”

Section: Criteria For Choosing Award Procedures From Literaturementioning

confidence: 99%

“…For a certain number of bids the total costs (adding up the best expected bid and tendering costs) are optimal (see Figure 7). This optimal number of suppliers is defined as the Economic Tender Quantity (ETQ) (De Boer et al, 2000). In the De Boer et al article, a mathematical model is presented for calculating this ETQ along with the minimum expected total costs.…”

Section: Criteria For Choosing Award Procedures From Literaturementioning

confidence: 99%

Choosing the open or the restricted procedure: A big deal or a big deal?

Heijboer

Telgen

2002

Journal of Public Procurement

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The legislation in the European Union (EU) regarding contracts to be awarded to third parties allows for a free choice by public agencies between the open and restricted procedure. Empirical evidence shows a high variance in the preference for one of the procedures exists between countries. This preference may be based on cultural phenomena only. Here we develop a quantitative model to calculate which procedure is the most economic. With insights from this model guidelines are given for an efficient policy regarding the choice for the open or restricted award procedure.

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“…Peleg et al (2002) study a setting where the buyer chooses how many suppliers to recruit for an auction, but they do not study the possibility that the buyer runs a test auction to update her information about existing suppliers, which is the focus of our paper. de Boer et al (2000) find the "Economic Tender Quantity" when there are costs associated with sending RFQs, evaluating suppliers' tenders, and communicating the results of the competition. In our model, we study the same type of cost, but incorporate incumbent suppliers and allow multiple auctions.…”

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confidence: 99%

When to Deploy Test Auctions in Sourcing

Beil

Chen

Duenyas

et al. 2018

M&SOM

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We investigate when a buyer seeking to procure multiple units of an input may find it advantageous to run a "test auction" in which she has incumbent suppliers bid on a portion of the desired units. The test auction reveals incumbent supplier cost information that helps the buyer determine how many entrants (if any) to recruit at a cost prior to awarding the remaining units. The optimal number of entrant suppliers to recruit follows a threshold policy that is monotonic in the test auction's clearing price unless the underlying supplier cost distribution is not regular. When setting her reserve price in the test auction, the buyer uses supplier recruitment as her "outside option": If the reserve price is not met in the test auction, the buyer recruits new suppliers and runs a second auction. We compare the attractiveness of the test auction procedure relative to the more conventional procedure in which the buyer auctions off her entire demand in one auction. Since the buyer can choose ex ante which procedure to use, we propose using whichever has lower ex ante total (purchase plus recruitment) cost. Finally, using an optimal mechanism analysis, we find a lower bound on the buyer's cost, and use that cost as a benchmark to show that our proposed sourcing strategy performs well given its ease of implementation.

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A Basis for Modelling the Costs of Supplier Selection: The Economic Tender Quantity

Cited by 8 publications

References 0 publications

Procedural rationality in supplier selection

Procedural rationality in supplier selection

Choosing the open or the restricted procedure: A big deal or a big deal?

When to Deploy Test Auctions in Sourcing

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