A Decision Support System for Purchasing Management of Large Projects

Boaz Ronen, Dan Trietsch
1988 Operations Research  
This paper describes a model base Decision Support System (DSS) for purchasing materials and components for large projects. The DSS may be used under two scenarios. Under one scenario, we have a project to execute, and we are looking for a good way to manage the purchasing so as to minimize the expected costs. The decision variable unc?er our control is when and from whom to order ear? item. Under the other scenario, we are bidding for the project, and wish to assess the costs associated with
more » ... s associated with the purchasing decisions which we should consider before making our bid. In both cases we take into account expected out of pocket costs as well as lateness and/or expediting penalties. The DSS is designed to help us choose the best supplier for each item and schedule the placement of the orders--decisions which are very difficult to make well without such a model base DSS. To avoid these penalties the project manager has to order the items as soon as possible. This, however, will increase the holding costs which the project will have to carry. To avoid large holding costs, then, the manger may be tempted to order "just in time." Clearly, an optimization is called for. Given an optimal purchasing plan, the expected costs can be calculated, as a function of the due date and the lateness penalty and/or expediting penalty. This information can be very useful while planning the bid. In other words, in order to assess the expected costs correctly the manager should plan the purchasing orders while still in the bidding stage. When we have a project undar way, the project manager or the purchasing manager has to actually place the orders and to monitor their status. He or s~ie would have to decide when and from which supplier to purchase each item (or, more realistically, each family of items), based o< price, lead time distribution, and other information about the supplierst quality and anticipated future deliveries. Furthermore, the decision when to place the order may be influenced by the choice of the supplier, and cannot be made independently. For all these tasks, a good Decision Support System (DSS) should be welcome. This paper ventures to propose such a DSS.
doi:10.1287/opre.36.6.882 fatcat:inwmyrlx7fb5nobtyl66qfpjdu