A decision support system framework for purchasing management in supply chains

Abstract

Purpose. This paper proposes the framework of a Decision Support System (DSS) to select the optimal number of suppliers that are candidate to join a supply chain network. The DSS bases the decision on the cost evaluation of the transaction among the buyer and the potentially available suppliers by way of a Monte Carlo approach. Methodology. In particular, the presented DSS includes a statistical module and the DSS core. The former module estimates (in a probabilistic way) the exchange performance indices, i.e. total cost of the transaction, purchasing price and additional costs of purchasing, while the latter module implements the transaction evolution making use of a simulation model. Findings. The DSS is tested by way of a case study, namely the supply of a customized product by a general contractor in the construction industry. The obtained DSS results are validated with the actual data of the purchasing, confirming the underlying model suitability and the DSS effectiveness for purchasing management in supply chains. Research limitations/implications. Indeed, the DSS is able to evaluate the total cost of purchasing and the optimal number of suppliers to contact before the transaction takes place and may be employed by the buyer to forecast the cost of the purchase and take decisions to minimize such a performance index of the exchange. Perspectives on future research include further validations of the DSS, also considering other factors than price in the transaction evaluation. Originality/value of the paper. The DSS can be successfully employed to identify managerial guidelines that can be followed by practitioners, particularly when the first supply of a product has to be carried out.

Estimation of costs in the Russian public procurement system

“…All these ex ante costs components can be obtained via a Gaussian distribution. The quality control time of each bidding supplier exhibits a Beta probabilistic distribution, while its enforcement time is expressed by an exponential distribution (Costantino et al, 2009). To calculate additional costs of purchasing, these researchers use the decision support systems (DSS).…”

“…However, authors did not describe the methodology for their quantitative estimations. Costantino et al (2006Costantino et al ( , 2009Costantino et al ( , 2012 propose a method of quantifying the additional costs of purchasing. This method estimates time costs at different stages of the procurement process and the relevant monetary costs committed to procurement.…”

“…As mentioned above, additional costs of purchasing include ex ante costs and ex post costs. The ex ante costs of purchasing, according to Costantino et al (2006Costantino et al ( , 2009, consist of the following components: the costs of research and contact of suppliers, negotiation costs and the costs of the drafting and approving the contract with the supplier who has proposed the best price. Ex post costs are a function of quality control costs and enforcement costs.…”

“…Ex post costs include performance control, performance verification, adjustment and bargaining (Buvik and Halskau, 2001). Costantino et al (2006Costantino et al ( , 2009 view transaction costs connected to the purchase of a new product/service as additional costs of purchasing. The additional costs of purchasing, together with the purchasing price, make up the total cost of purchasing.…”

“…These costs were borne by the public entity in all cases, even if competitive procedures did not produce any savings from price reduction. Although Costantino et al (2006Costantino et al ( , 2009Costantino et al ( , 2012 address the problem of measuring additional costs of purchasing, they focus mostly on measuring the costs associated with a larger number of procurement bidders, comparing these costs with possible benefits. Häkkinen and Kettunen (2015) stress the necessity to take the coordination costs between the supplier and the customer into account when calculating the purchase order size.…”