VENDOR SELECTION WITH BUNDLING

Product bundling has become increasingly prevalent not only in consume r goods but also in the industrial sector. We study a purchasing probl em in which a buyer must obtain necessary numbers of various stock ite ms from a variety of vendors who charge different prices, have limited capacities and different levels of quality, and offer bundled product s at discounted prices. We examine relationships among different bundl ing scenarios and show that the most general scenario is one in which free items are given to the buyer when sufficient quantities are purch ased. We develop a mixed integer linear program that finds the purchas ing strategy for the buyer that minimizes the total purchase cost. We present computational results which indicate that the problem is very tractable to solve optimally on a personal computer with standard opti mization software. Finally, three extensions of the model are discusse d.