Abstract

A mathematical programming model employing activity-based costing is developed for material procurement
performance improvement in a single supplier-single customer environment in shipbuilding. Four types of
activities are identified as targets of cost reduction: supplier caused (reflected) and customer caused (reflected)
activities. Complete information exchange is assumed between supplier and customer, with a view to obtaining
maximum cost reduction through joint investments by the supplier and the customer, subject to their budgetary
constraints. A real case of shipbuilding of boats and barges for inland waterways in the Amazon region in Brazil
is used to test the applicability and utility of the mixed integer programming model.

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