An Experimental Comparison of MRP Purchase Discount Methods

Abstract

This paper addresses the managerial issue of how best to order purchased materials in MRP environments when discounts are available from vendors. The least unit cost, least period cost, McLaren's order moment, revised part-period balancing, incremental part-period balancing, traditional discount order quantity, and an optimal algorithm are experimentally investigated under a variety of simulated scenarios. Other experimental factors include the coefficient of variation in demand, forecast uncertainty beyond the current period, the average time between orders, the ratio of the discount quantity to the EOQ, the attractiveness of the discount, the length of the planning horizon, inventory holding costs, and the autocorrelation of demand. All factors tested in this comprehensive experiment significantly affected the performance of the discount ordering procedures. Furthermore, the results from this study suggest that the least unit cost, McLaren's order moment, the traditional discount order quantity, and the optimal procedures significantly out-perform the others. A further choice among these alternative methods was found to be a function of the operating environment and limitations that may exist on available computing time.

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