Minimum Cost Allocation of Tenders

Abstract

In a big organization like the Australian Post Office, where large sums of money are spent to purchase a very large number of items every financial year, the problem is that of allocating the orders of the different items to the competing tenderers at a minimum cost. We have dealt with this in two sections; one is devoted to quantity discounts, the other to order value discounts. We have shown the mathematical formulation using integer and mixed integer linear programming, the mathematical programming systems used, the benefits gained and costs incurred, and the effects of the implementation of minimum cost allocation techniques on the organizational structure of some sections of the A.P.O. We have also shown that these techniques could be used to analyse the relative economic efficiencies of the competing tenderers with the objective of formulating a suitable economic purchasing policy for the organization concerned.