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Optimal supplier choice with discounting

Author

Listed:
  • B Goldengorin

    (University of Groningen)

  • J Keane

    (University of Manchester)

  • V Kuzmenko

    (Glushkov Institute of Cybernetics, National Academy of Sciences of Ukraine)

  • M K-S Tso

    (University of Manchester)

Abstract

This paper investigates a model for pricing the demand for a set of goods when suppliers operate discount schedules based on total business value. We formulate the buyers's decision problem as a mixed binary integer program, which is a generalization of the capacitated facility location problem (CFLP). A branch and bound (BnB) procedure using Lagrangean relaxation and subgradient optimization is developed for solving large-scale problems that can arise when suppliers’ discount schedules contain multiple price breaks. Results of computer trials on specially adapted large benchmark instances of the CFLP confirm that a sub-gradient optimization procedure based on Shor and Zhurbenko's r-algorithm, which employs a space dilation in the direction of the difference between two successive subgradients, can be used efficiently for solving the dual problem at any node of the BnB tree.

Suggested Citation

  • B Goldengorin & J Keane & V Kuzmenko & M K-S Tso, 2011. "Optimal supplier choice with discounting," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 62(4), pages 690-699, April.
    • Handle: RePEc:pal:jorsoc:v:62:y:2011:i:4:d:10.1057_jors.2009.164
    DOI: 10.1057/jors.2009.164
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    References listed on IDEAS

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