The splitting value: analyzing the value of buying in separate lots

M.M. Linthorst, Jan Telgen

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Abstract

We consider the situation in which a buyer has the option to buy a whole project or to buy a number of separate lots from different suppliers that together constitute the project. Buying a whole project reduces the coordination and management costs. First we show that buying a whole project (the bundle) might increase the project costs. Then we investigate this possible increase in project costs by analytical means. This analysis proves the increase in costs. Finally we visualize the size of the cost increase by simulation techniques. In the simulated cases, buying in separate lots turns out to save up to 10 percent of the total purchasing price. This leads to the conclusion that there is a positive effect associated with splitting into lots, we call it the splitting value.
Original languageUndefined
Title of host publicationProceedings of the 16th Annual IPSERA Conference - Practice Makes Perfect
Pages461-468
Number of pages10
Publication statusPublished - 1 Apr 2008
Event16th Annual IPSERA Conference 2007: Practice Makes Perfect - Hilton Bath City, Bath, United Kingdom
Duration: 1 Apr 20074 Apr 2007
Conference number: 16

Conference

Conference16th Annual IPSERA Conference 2007
CountryUnited Kingdom
CityBath
Period1/04/074/04/07

Keywords

  • METIS-246710
  • IR-101538
  • lots
  • Bundling
  • purchasing decisions
  • splitting value

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