You have four vendors on the \"short list\" for a project that involves procurem

Question

You have four vendors on the "short list" for a project that involves procurement decisions. They have virtually the same experience, have proposed similar project teams, and have excellent references. Two are major national vendors, one is a local company, and the other is a regional firm. The regional firm has the lowest price, followed by the local firm, with the national vendors submitting the highest bids.

Does size make a difference?

What about cost?

What other information would you need to make a decision?

Explanation / Answer

Yes ordering size makes a difference. As the ordering size increases the firm is more likely to get a quantity discount. The quantity discount allowed by regional vendors are often higher than local vendor or national vendor. We know as the ordering quantity will increase, the per unit price of the material will decrease. However, increased ordering size will increase the average raw material held in the inventory and thus total carrying cost increases. This strategy will help in saving on annual ordering cost. We need to check quality of product or services offered by the vendors, whether the products offered by vendors are good fit for our requirement or not. Apart from this, we have to see the days of credit period they can allow us.

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