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Supplier Selection via Tournaments
Author(s) -
Deng ShiJie,
Elmaghraby Wedad
Publication year - 2005
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/j.1937-5956.2005.tb00022.x
Subject(s) - tournament , procurement , quality (philosophy) , investment (military) , business , popularity , microeconomics , selection (genetic algorithm) , function (biology) , operations research , industrial organization , computer science , operations management , marketing , economics , mathematics , psychology , social psychology , philosophy , epistemology , combinatorics , artificial intelligence , evolutionary biology , politics , political science , law , biology
In this paper, we study the performance of a sourcing mechanism gaining popularity in industrial procurement environments; a tournament . Under a tournament, a buyer initially procures her parts from two suppliers with possibly different quality levels, for T time periods, i.e., she parallel sources. During this time, the buyer is able to observe noisy signals about the suppliers' quality. At time T , she selects the supplier with the highest observed performance and awards it the remainder of her business. We characterize the optimal duration of the tournament as a function of various market parameters, including information and investment costs. Furthermore, we demonstrate that a tournament can be more profitable for the buyer than selecting the highest quality supplier at time T = 0 and sole sourcing entirely.