Incorporating coordination costs into purchasing lot size decisions

Kai Häkkinen, Outi Kettunen

    Research output: Contribution to journalArticleScientificpeer-review

    2 Citations (Scopus)

    Abstract

    This paper proposes an addition to the EOQ model in order to take the coordination costs between the supplier and the customer into account. The coordination costs are part of the transaction costs (TC) and vary significantly from one relationship to another. We have incorporated a 'TC factor' into the EOQ formula to take the coordination costs into account when calculating the purchase order size. We have also conducted a pilot study in one industrial company to test the new updated formula with real data. A key issue from a customer point of view is to determine the TC factor uniquely for each supplier.
    Original languageEnglish
    Pages (from-to)476-493
    JournalInternational Journal of Procurement Management
    Volume8
    Issue number4
    DOIs
    Publication statusPublished - 2015
    MoE publication typeA1 Journal article-refereed

    Keywords

    • economic order quantity
    • EOQ
    • transaction costs
    • purchasing management
    • Wilson formula
    • coordination costs
    • procurement
    • lot size decisions
    • purchase order size
    • buyer-supplier relationship

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