The supplier selection problem with quantity discounts and truckload shipping

To minimize procurement expenditures both purchasing and transportation costs need to be considered. We study a procurement setting in which a company needs to purchase a number of products from a set of suppliers to satisfy customer demand. The suppliers offer total quantity discounts and transportation costs are based on truckload shipping rates. The goal is to select a set of suppliers so as to satisfy product demand at minimal total costs. The resulting optimization problem is strongly NP-hard. We develop integer programming based heuristics to solve the problem. Extensive computational experiments demonstrate the efficacy of the proposed heuristics and provide insight into the impact of instance characteristics on effective procurement strategies. ► Procurement problem that simultaneously considers transportation and purchasing costs. ► Linear programming based iterative rounding heuristics and diversification methods. ► Produce high-quality solutions an order of magnitude faster than commercial IP solver. ► Extensive computational study to understand sensitivity to changes in environment. ► Insights and rules-of-thumb to help companies develop effective selection strategies.