Efficient purchaser incentive when dealing with suppliers implementing continuous improvement plans

Laoucine Kerbache, Christian van Delft

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

This paper presents incentive schemes in the framework of a collaborative purchasing cost reduction process with a supplier implementing a continuous improvement plan. Using a stochastic decision process formulation, we analyze the structure of the optimal policy and characterize its numerical robustness through numerical applications solved by dynamic programming. Then, we analyze two purchaser incentive schemes observed in practice. First, we describe some theoretical properties of the policies associated with these two schemes (schemes I and II) and show that these policies exhibit nonoptimal structures. Second, we estimate the quantitative loss for typical parameter values and, in particular, we show that for certain businesses this loss is significant. Then, we propose two easy-to-implement improvements (schemes III and IV), which result in near-optimal solutions and a significant impact on purchasing cost performances.

Original languageEnglish
Pages (from-to)673-701
Number of pages29
JournalInternational Transactions in Operational Research
Volume21
Issue number4
DOIs
Publication statusPublished - Jul 2014
Externally publishedYes

Keywords

  • Collaborative cost reduction process
  • Continuous improvement
  • Dynamic programming
  • Purchaser incentives
  • Stochastic decision process

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