The Procurement Cost Research Based On Third Party Purchase

There were so many opportunities and also challenges to China from 2001 when it joined in the WTO, especially to manufacturing industry. In recent years, China's manufacturing industry has a rapid develop, and the productivity has been improved to a high level that just improve technology can not meet the need of product competitiveness. So, in order to get more living space, enterprise begins to find competitive advantages from external resource providers.Actually, the funds for the procurement of raw materials accounted for 40%～60% of the total funds. So the procurement cost has become important to total cost, and if it can be saved, huge profit comes. Currently, many enterprises have recognized the importance of procurement, so all of them wanted to reduce procurement costs. Some considered that reduce procurement costs means to cut price with suppliers, but there were no good results: the defects of product quality, out of stock, bad after-sales service…Reason for this phenomenon is that enterprises only noticed the explicit costs but not the hidden costs. The bargaining behavior of enterprise can not maintain long-term cooperation with suppliers, so it must change partners all the time. Trading with new suppliers brings risk that suppliers may delay delivery and provide inferior materials. These risks all belong to the hidden cost of procurement costs.For this problem, this paper introduces a third-party procurement service provider who we call it third party purchase (TPP). If enterprise pays some money to TPP, then, TPP can help enterprise avoid risks. First, we establish a mathematical model about risk of out of stock; Second, we establish a mathematical model about risk of quality defects; Third, we consider the total costs of procurement and also establish a mathematical model; At last, we bring a utility function into model in order to tell the best decision to decision-makers.