RFQ Auctions with Supplier Qualification Screening

Z. WAN, D. Beil

Operations Research

juillet-août 2009, vol. 57, n°4, pp.934-949

Départements : Information Systems and Operations Management

PAS SOUS AFFILIATION HECWe consider a manufacturer using a Request For Quotes reverse auction in combination with supplier qualification screening to determine which qualified supplier will be awarded a contract. Supplier qualification screening is costly for the manufacturer, for example involving reference checks, financial audits, and on-site visits. The manufacturer seeks to minimize its total procurement costs, i.e. the contract payment plus qualification costs. While suppliers can be qualified prior to the auction (pre-qualification), we allow the manufacturer to delay all or part of the qualification until after the auction (post-qualification). Using an optimal mechanism analysis we analytically explore the trade-offs between varying levels of pre- and post-qualification. While using post-qualification causes the expected contract payment to increase (bids from unqualified suppliers are discarded) we find that standard industrial practices of pre-qualification only can be improved upon by judicious use of post-qualification, particularly when supplier qualification screening is moderately expensive relative to the value of the contract to the manufacturer.Subject classifications: bidding/auctions; procurement; supplier qualification; supplier screening; mechanism design.Area of review: Manufacturing, Service, and Supply Chain Operations