A Basic Foundation for Unravelling Quantity Discounts: Gaining more Insight into Supplier Cost Mechanisms

Selling organizations often offer quantity discounts schedules, but do not provide the underlying Quantity Discount Price Functions (QDPF). In literature an analysis on how QDPF could be derived from discount schedules is lacking. This is remarkable as QDPF contain useful information for buying organizations. QDPF give more insight into the fixed and variable costs of selling organizations and can be a useful tool for buying organizations in selecting and negotiating processes. Furthermore, QDPF can be used for calculating and allocating price savings in group purchasing and multiple sourcing decisions. In this paper we develop one general QDPF and two related measures for negotiating spaces. We prove that our QDPF gives a highly reliable approximation of 66 quantity discount schedules of different selling organizations. Finally, we compare the QDPF parameters of the 66 schedules and discuss their basic properties.