Automated system for generating procurement lists

Abstract

An automated system and concomitant methodology for minimizing the procurement costs of products and for generating a list of selected products based on the results of the minimization is disclosed for the Business Volume Discount regime. The system processing covers purchasing situations wherein multiple vendors offer a plurality of products and the vendors give discounts based on the total dollar amount of business received from the purchasers. The processing effected by the system utilizes a linear programming technique to solve a model of the business volume discount regime given a variety of constraints.

Claims

What is claimed is:

1. An automated method implemented on a computer system for generating product procurement requests by a purchaser under a business volume discount regime, the method comprising the steps of entering and storing in a product-price database of the computer system data representative of the costs of individual products supplied by vendors, the cost including commitment prices and as-ordered prices,

entering and storing in a discount database of the computer system data representative of the discounts applied to the products by each of the vendors on a commitment basis and an as-ordered basis,

inputting into the computer system by the purchaser a set of product requirements,

applying a prescribed mathematical algorithm, as implemented by a computer program stored in the computer system, to said set of product requirements, said algorithm including a mathematical relationship representative of a business volume decision purchasing model which utilizes said product-price database and said discount database, and

displaying on the computer system a list of selected ones of the products and costs along with associated vendors as determined from applying said mathematical algorithm.

2. The method as recited in claim 1 wherein said step of applying said prescribed algorithm includes the steps of

determining a cost function, including constraints, representative of the business volume discount regime and indicative of said mathematical relationship, and

minimizing said cost function with a linear programming solution technique.

3. An automated method implemented on a computer system for generating product procurement requests by a purchaser under a business volume discount regime, the method comprising the steps of

providing an input data screen to input product price data and discount price data by a user and storing said product price data and said discount price data in the computer system,

providing an input screen to input product requirements as stipulated by the user,

calculating an optimal purchasing strategy for the product requirements based on a business volume discount model utilizing said product price data and said discount price data, and

printing by the computer system a purchasing list as determined from the optimal purchasing strategy.

4. The method as recited in claim 3 further including the step of

displaying on the computer system said purchasing list.

5. The method as recited in claim 4 wherein said step of calculating includes the steps of

determining a cost function, including constraints, representative of the business volume discount regime, and

minimizing said cost function with a linear programming solution technique to obtain said optimal purchasing strategy.

6. An automated process implemented on a digital computer for producing a product procurement list from a product requirements list, the process comprising the steps of

prompting a user to input data into the digital computer relating to product price and discounts for each vendor of the products,

capturing product price and discount data as supplied by the user to the digital computer,

processing said product price data and said discount data with an algorithm defining a business volume discount model to generate an optimal purchasing strategy, and

producing by the digital computer a product purchase list based on the results of the processing step.

7. The method as recited in claim 6 further including the step of

displaying said product purchase list on the digital computer.

8. The process as recited in claim 7 where in said step of processing includes the steps of

determining a cost function, including constraints, representative of the business volume discount model, and

minimizing said cost function with a linear programming solution technique to obtain said optimal purchasing strategy.

9. A procurement processing system comprising

storing means for storing product price information and for storing product discount information,

input means for inputting product demands,

means for determining the optimal purchasing strategy for purchasing products under a business volume discount regime utilizing said product price information and said product discount information, and

output means for outputting a list of selected products based on the said optimal purchasing strategy as generated by said means for determining.

Description

FIELD OF THE INVENTION

This invention relates generally to a computer-based product procurement system and, more particularly, to a system for automatically providing a purchasing manager with a report listing the type and number of products to be purchased from various vendors as well as an allocation of costs to the vendors supplying the products.

BACKGROUND OF THE INVENTION

Economic evaluation of products based on their price quotes and allocating their purchases to the least-cost vendor is a conventional problem in a product procurement regime. For purchasing tens and thousands of different products at different prices, this evaluation has been done on a one product-by-one product basis in the past, even for large companies with central purchasing departments. This strategy was employed because the vendors in the traditional situation provided discounts based solely on the quantity of each individual product purchased.

The cost structure for traditional manufacturing has been the main reason for this type of discount schedule. To manufacture any products, there is a fixed cost and a variable cost. Fixed cost does not change with the quantity manufactured. Fixed cost may be associated, for instance, with the cost of "tooling-up" to manufacture. On the other hand, variable cost is directly proportional to the quantity produced. Variable cost may be associated, for instance, with the cost of materials composing the item of manufacture. A large number of purchases of a single product will result in a lower fixed cost per article for the production of that article. This is the reason why the traditional manufacturing approach fostered the production of a high volume of standardized products, provided economies of scale in terms of quantity, and encouraged vendors to give quantity discounts.

Some of the factors in fixed cost, such as rent, are common among all of the products manufactured. What makes the fixed cost of one product different from that of another product in the same family is the set-up cost. With the introduction of Flexible Manufacturing System (an arrangement of machines and a connecting transport system under control of a central computer that allows processing of several workpieces simultaneously) into the production environment, the set-up cost becomes negligible in comparison to the variable cost. In other words, the economy of scale in terms of quantity essentially disappears, and as a result, it is more meaningful for vendors to give discounts based on the total dollar amount of multiple products sold to a given purchaser. This new approach gives rise to the Business Volume Discount regime, wherein multiple vendors offer multiple products at different unit prices, and discounts based on the total dollar volume of purchases.

The determination by a purchasing manager of the most economical purchasing option for required products, while considering such factors as prices, volume discounts and other financial incentives offered by many vendors for their products, has been virtually an intractable problem under the business volume discount regime. Ideally, the manager would determine the total cost of every possible purchasing scenario. But sheer numbers render this as practically impossible. For instance, a company might need 300 products that are available at different prices from only four vendors. Taking into account discounts and constraints such as limits on supplier capacity, the manager could be faced with sorting through an astronomical number of choices--as many as 10.sup.100.

Even the most capable purchasing manager would find it difficult to arrive at the best purchasing strategy because there are essentially an infinite number of choices to be addressed. However, purchasing decisions must be made and there is a significant amount of money at stake, especially for purchasers of high-cost, high-volume items. Decisions based on a sound economic analysis could save such purchasers a significant amount of money on an annual basis. Yet analyzing the options in a straightforward sense via a spread-sheet analysis or even computations on a powerful mainframe is time-consuming at best. There must be some limitation to the number of possibilities that can be considered to engender a more tractable problem and concomitant solution.

There is an additional complication to the purchasing dilemma. In the past, a buying company (hereafter simply referred to as a company) using a traditional purchasing approach generally bought products on an "as-ordered" basis, that is, the company purchased when the need arose. As incentives, suppliers offered discounts. For example, a vendor might sell one to 50 units for $100 each; 51 to 100 units for $98 each; and 101 or more units for $95 each. To formulate a purchasing strategy based on quantity discounts, a purchasing manager compared prices from different vendors one-by-one, product-by-product. The final purchasing strategy was a direct function of the comparisons. The traditional purchasing approach focused on comparisons between individual products rather than on the whole purchasing picture.

Under the more recent business volume discount approach, a vendor offers discounts on total business volume--a dollar value--as opposed to quantities of individual products. For example, a vendor might offer a 10 percent discount for a total business volume of two to four million dollars and a 20 percent discount for more than four million dollars' worth of purchases. In return, the company commits to a minimum volume of business, in accordance with anticipated demands. Thus the business volume discount regime results in generally a mix of both commitment and as-ordered purchasing decisions.

There are no known prior attempts to extend the methodology of the conventional purchasing approaches to cover the business volume discount purchasing problem.

SUMMARY OF THE INVENTION

These shortcomings and limitations of the prior art are obviated, in accordance with the present invention, by generating a report of selected products based on customer requirements via the determination of an optimal solution to the business volume discount model of the purchasing problem without calculating the actual cost of non-optimal solutions.

Broadly speaking, an automated method for generating a list of selected products to be purchased by a product manager under a business volume discount regime is implemented on a computer system. In operating the system, a set of input screen formats are called into view by the purchaser to enter and store information relating to: the product price and discount information provided by the vendors of the products; product demands; and constraints, if any, treating such factors as the maximum percentage of product demand to be purchased from any one vendor for a given product, the percentage of as-ordered purchases and commitment purchases, and so forth. Once this information is entered by the user, the business volume discount algorithm is invoked to determine the optimal purchasing strategy in view of the product price and discount data as well as the constraints, if any. The list of selected products as determined from invoking the algorithm is formatted by the computer system and displayed by the computer system to the purchaser.

The organization and operation of this invention will be better understood from a consideration of the detailed description of the illustrative embodiment thereof, which follows, when taken in conjunction with the accompanying drawing.

BRIEF DESCRIPTION OF THE DRAWING

FIG. 1 is a high-level block diagram of a computer-based system for determining the optimal solution for the business volume discount regime and for generating a report of the selected products;

FIG. 2 is a flow diagram of the steps for determining the optimal purchasing solution; and

FIG. 3 is a flow diagram of the processing effected by the business volume discount algorithm applied to input data so as to generate the report of selected products.

DETAILED DESCRIPTION

To place in perspective the detailed description of the present invention, it is instructive to first focus on a high-level discussion of the functionality of the computer-based automated system as well as the processing effected by the automated system and by the associated software modules comprising the automated system. After this, a description of the flow diagrams illustrative of the automated system will complete the detailed description. This approach has the advantage of first introducing terminology and notation which will aid in elucidating the various aspects of the present invention.

Overview of the Present Invention

As a starting point in the exposition, an example of the procurement of products by a company under a business volume discount regime is presented. There are three products of interest designated P1, P2, and P3, respectively. Forecasted demands/requirements for these products are given in TABLE 1.

                  TABLE 1
    ______________________________________
    PRODUCT        DEMAND
    ______________________________________
    P1             500
    P2             375
    P3             313
    ______________________________________

                  TABLE 2
    ______________________________________
                    Commitment   Standard As-Ordered
    Vendor Product  Base Price ($)
                                 Base Price ($)
    ______________________________________
    V1     P1       110          110
           P2       120          120
           P3       180          200
    V2     P1       100          105
           P2       120          120
           P3       200          210
    V3     P1        90          100
           P2       130          130
           P3       190          210
    ______________________________________

                  TABLE 3
    ______________________________________
    Commitment           Standard As-Ordered
                        Discount          Discount
    Vendor Range ($)    (%)      Range ($)
                                          )%)
    ______________________________________
    V1       0-5,000    0           0-20,000
                                          0
           5,000-50,000 2        over 20,000
                                          2
           over 50,000  4
    V2        0-10,000  0           0-10,000
                                          0
           10,000-20,000
                        2        10,000-30,000
                                          1
           20,000-50,000
                        3        over 30,000
                                          2
           50,000-150,000
                        4
           over 150,000 5
    V3       0-5,000    1           0-15,000
                                          0
           5,000-30,000 2        over 15,000
                                          2
           30,000-100,000
                        3
           over 100,000 4
    ______________________________________

                  TABLE 4
    ______________________________________
                   Quantity Purchased
    Vendor   Product     Commitment As-Ordered
    ______________________________________
    V1       P1           0         0
             P2           75        75
             P3          187        0
    V2       P1          100        100
             P2          225        0
             P3           0         63
    V3       P1          300        0
             P2           0         0
             P3           63        0
    ______________________________________

                  TABLE 5
    ______________________________________
                   Quantity Purchased
    Vendor   Product     Commitment As-Ordered
    ______________________________________
    V1       P1           12         0
             P2          180        45
             P3          151        38
    V2       P1          148        40
             P2          120        30
             P3           0          0
    V3       P1          240        60
             P2           0          0
             P3          100        24
    ______________________________________

• Inventors
  Katz, Paul A.; Sadrian, Amir A.;
• Assignee
  Bell Communications Research, Inc. (Livingston, NJ)
• Published
  Jun-29-1993
• Current US Classes:
  705/29
  705/7
• Application #
  632019
• International Classes
  G06F 015/22; G06F 015/24
• Field of Search
  364/401 364/225 364/918 364/918.1
• Examiner
  Envall, Jr.; Roy N.
• Agent
  Suchyta; Leonard Charles, Peoples; John T.