Making the most of game theory in the supplier selection process for complex items

Abstract

There has been a growing interest in the application of game-theory to enhance the impact of supplier selection processes, but existing applications have been focused on commodity products. Therefore, scholars have recently called for further research into the use of game-theory to develop supplier selection processes for more complex products. The aim of this paper is to contribute by discussing the design and implementation of a novel supplier selection process based on game-theory through an empirical study of a construction project for an automotive company. The novelty of this research stems from the application of game-theory to design and implement a two-phase supplier selection process, combining a modified Japanese-auction with a structured bargaining process, and evaluating its impact in the context of complex items. Findings suggest that two-phase processes can enhance the effectiveness of the supplier selection by increasing competition and generating better predictions of the outcomes from the negotiation.

Keywords:

• Supplier selection
• game theory
• reverse auction
• negotiation
• complex items

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The qualified term is ‘weakly dominant’ but we will skip this theoretical detail.

2 In this particular case, the key parameters of the game were non-cooperative, two-phases (modified Japanese auction followed by extensive game) and imperfect information.

Additional information

Notes on contributors

Miguel Mediavilla

Miguel Mediavilla, PhD in Engineering and PhD in Economics, is the Managing Director of OPERATIONS Management Engineers, a research and consulting company. Previously, Miguel worked for 20 years as executive in the industry. Additionally, he is an Associate Professor at the University of Mondragon (Spain). His research interest is focused on procurement and international operations networks. He has over 35 publications in academic journals, book chapters and conference proceedings.

Kepa Mendibil

Kepa Mendibil is Principal Teaching Fellow and Associate Dean International at the Faculty of Engineering, University of Strathclyde. Kepa has worked on a number of European/UK-funded research programmes and multiple industrial projects with local and multinational organizations from across different business sectors. Common to his industrial experience and research interests is the idea of business improvement through operations strategy, innovation and performance measurement. He has over 50 publications in academic journals, book chapters and conference proceedings.

Carolina Bernardos

Carolina Bernardos is a Global Category Manager in a German multinational industrial group. She has more than 15 years’ experience working in Global Procurement and Global Sales for leading companies in the automotive and consumer goods sectors. She has a vast practical experience on the application of auctions and bargaining based on game-theory for supplier selection processes and category negotiations. Additionally, she is a PhD candidate in game-theory applied to negotiations.