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Strategic Sourcing in Procurement

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In this paper, we study how a big buyer owing many smallish units may coordinate procurement demands in order to obtain a low price. We show that when the capacity of the big buyer is relatively large, the optimal policy consists on procuring (part of) its requirements through lots. The optimal number and sizes of these lots would depend on the number of potential suppliers as well as the total requirements of this buyer; and in general, a single lot is not optimal. Moreover, we also show that it may be optimal to demand some requirements through smallish units.

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  • Lluis Bru & Daniel Cardona, 2016. "Strategic Sourcing in Procurement," DEA Working Papers 82, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    • Handle: RePEc:ubi:deawps:82
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    File URL: http://www.uib.es/depart/deaweb/deawp/pdf/w82.pdf
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    1. David Spector, 2011. "Exclusive contracts and demand foreclosure," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 619-638, December.
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    11. David de Meza & Mariano Selvaggi, 2004. "Exclusive Contracts Foster Relationship-Specific Investment," The Centre for Market and Public Organisation 04/105, The Centre for Market and Public Organisation, University of Bristol, UK.
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    Cited by:

    1. Bru, Lluís & Cardona, Daniel & Sákovics, József, 2023. "Block sourcing plus," European Journal of Operational Research, Elsevier, vol. 305(3), pages 1130-1140.

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    More about this item

    Keywords

    Procurement policy; Auctions; Buyer groups; Single-sourcing; Lots;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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