You are on page 1of 2

Decision support Systems: Purchasing at IBM

Written by: Swapna.Dasari Lecturer.

The purchasing function within many corporations is responsible for a significant proportion of corporate costs. The problem faced by the corporate buyer is complicated by a variety of factors. The number of vendors is often large , contract terms may be difficult to compare because of the variety of structures offered by the vendors, and the evaluation of foreign vendors ( increasingly relevant in high-tech industries) is complicated by such issues as exchange rates with foreign currencies, differing inflation rates, and the risk of supply disruption. In order to improve the productivity of the purchasing function, a computerized vendor selection system was implemented for the purchasing department at IBMs Poughkeepsie manufacturing facility. The vendor selection system (VSS) is an interactive decision support system that utilizes imbedded mixed integer programming optimization methods to improve the Quality of purchasing decisions. The system has capabilities far exceeding the standard features of commercially available purchasing software systems. Buyers can examine a variety of different purchasing strategies using assumptions they have defined. The what if capabilities of the system are implemented using a menu driven dialog. The use of mixed integer programming in the system is completely transparent to the user. Implementation of the system has resulted in typical savings of between 5 and 10 per cent on purchases. Estimated annual savings are expected to exceed $1 million. Another example is the Air products. Air products and chemicals, Inc., is a leading supplier of industrial gases. A sophisticated decision support system has been developed to model their customer response in the distribution of industrial gases. Among other components o0f the system is a mathematical optimization module used to produce daily delivery schedules. The optimization module solves extremely large mixed integer programming models having as many as 800,000 variables and 200,000 constraints. Major tangible and intangible benefits have been realized from the system, not the least of which are annual savings in operating expenses of between 6 and 10 per cent. A mixed integer programming model was used to assist in planning the construction schedule for seven office buildings that are part of a 90-acre mixed use development near Dallas called Texas Plaza. The model aided in decisions related to scheduling the opening of each building, the amount of space to be leased in each building each year , the sale value of each building , and annual cash flows expected to the owner . Even though it was a low cost application, the model resulted in an increase in the net present value of profits of more than $6 million.

Reference: Source//; Paul S. Blender , Ricard W.Brown, Michael H.Issac

Improving Purchasing productivity at IBM with a normative Decision Support System, Interfaces, May June 1985. Source: Walter J. Bell, Louis M. Dalberto, Marshall Improving the distribution of Industrial gases with an On-line computerised Routing & scheduling Optimizer Interfaces, December 1983, . The article was a prize winning paper in the CPMS/ TIMS competition in 1983.

You might also like