Business, College of
Document Type
Article
Date of this Version
2014
Citation
IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 61, NO. 1, FEBRUARY 2014
Abstract
This paper considers a sourcing problem faced by a manufacturer who outsources the manufacturing of a product to one of several competing suppliers, whose cost and quality capabilities are unknown. We consider a two-stage sourcing process in which the first stage is the qualification stage, while the second stage is the supplier selection stage. In the first stage, the manufacturer exerts effort to learn about the quality level of each of the suppliers and then must determine the set of qualified suppliers, subject to some tolerance for error. In the second stage, the manufacturer runs a price-only procurement auction, in which the qualified suppliers compete for the manufacturer’s business.We model this two-stage sourcing process with the goal of obtaining insights into manufacturer’s optimal decisions. We seek to determine the optimal qualification standard, the optimal amount of effort to be exerted in the qualification process and the appropriate tolerance for error in the qualification process, and to understand the interactions between these decision variables. We are particularly interested in understanding how the manufacturer can design the process to 1) ensure the firm only sources from qualified suppliers and 2) encourage competition among the suppliers during supplier selection.
Included in
Business Administration, Management, and Operations Commons, Management Information Systems Commons, Management Sciences and Quantitative Methods Commons, Operations and Supply Chain Management Commons, Technology and Innovation Commons
Comments
© 2013 IEEE
DOI: 10.1109/TEM.2013.2266276