Determining Sourcing Strategies: A Decision Model Based on Activity and Cost Driver Information
Degraeve, Z Roodhooft, F
Degraeve, Z
Roodhooft, F
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
1998-08
Journal
Journal of the Operational Research Society
Book
Publication Volume
49
Publication Issue
8
Publication Begin page
781
Publication End page
789
Publication Number of pages
Collections
Abstract
Determining sourcing strategies for different material groups provides a major challenge to most companies. There has been little research on the choice of the optimal number of different suppliers for a given product group and the determination of their market shares. In this paper we propose a mathematical programming model using activity based costing information to determine optimal order splitting among suppliers on the basis of the different costs associated with the purchasing decision. We argue that sourcing strategies should be based on the minimisation of the total cost of ownership resulting from external purchases. We demonstrate the model by a real life case regarding the procurement of ball bearings at Cockerill Sambre S.A., a Belgian multinational steel producer. This decision support system is currently used by the company. This case resulted in the decision by management to develop comprehensive, company wide purchasing software using our mathematical program based on the total cost of ownership concept.
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Keywords
46 Information and Computing Sciences, 49 Mathematical Sciences, 35 Commerce, Management, Tourism and Services