Advanced Search
MyIDEAS: Login

Multiple Sourcing and Procurement Process Selection with Bidding Events


Author Info

  • Tunay I. Tunca

    (Graduate School of Business, Stanford University, Stanford, California 94305)

  • Qiong Wu

    (Graduate School of Business, Stanford University, Stanford, California 94305; and BNP Paribas, Hong Kong, China)

Registered author(s):


    We examine the procurement process selection problem of a large industrial buyer who employs reverse auctions for awarding procurement contracts. We contrast two classes of commonly used strategies under multiple sourcing; namely, single-stage reverse auctions, and two-stage processes where price-quantity adjustments between the buyer and the suppliers follow a first-stage reverse auction. Deriving bounds of efficiency for these two classes of procurement processes under convex supplier production costs, we present insights on the conditions under which each class is preferable for the buyer. Considering the effect of contracting and processing costs, a single-stage process is likely to be preferable to a two-stage process when the number of bidding suppliers is high, especially when capacity is rigid. A two-stage process with one information transfer in the second stage may be the preferred procurement mode when production is highly scalable, i.e., when the marginal production cost increase with increased production is small. When the number of suppliers is low, the effect of a decrease in production scalability depends on the current scalability level. For high scalability levels, a decrease in production scalability may decrease the efficiency of both single-stage and simple two-stage processes, whereas for low scalability levels, it tends to increase efficiency for both of these process classes. A decrease in production costs makes employing simple processes more attractive when production is highly scalable or when supplier capacity is rigid. For intermediate production scalability, however, a cost decrease may make employing two-stage processes with multiple information transfers in the second round preferable for the buyer.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL:
    Download Restriction: no

    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 55 (2009)
    Issue (Month): 5 (May)
    Pages: 763-780

    as in new window
    Handle: RePEc:inm:ormnsc:v:55:y:2009:i:5:p:763-780

    Contact details of provider:
    Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Web page:
    More information through EDIRC

    Related research

    Keywords: procurement auctions; supply chain management; contracting; multiple sourcing;


    No references listed on IDEAS
    You can help add them by filling out this form.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Romero Morales, Dolores & Steinberg, Richard, 2014. "Revenue deficiency under second-price auctions in a supply-chain setting," European Journal of Operational Research, Elsevier, vol. 233(1), pages 131-144.
    2. Anton, James J. & Brusco, Sandro & Lopomo, Giuseppe, 2010. "Split-award procurement auctions with uncertain scale economies: Theory and data," Games and Economic Behavior, Elsevier, vol. 69(1), pages 24-41, May.
    3. Yim, Andrew, 2010. "Quality Cost and Failure Risk in the Choice of Single versus Multiple Sourcing," MPRA Paper 27858, University Library of Munich, Germany.
    4. Gong, Jiong & Li, Jianpei & McAfee, R. Preston, 2012. "Split-award contracts with investment," Journal of Public Economics, Elsevier, vol. 96(1), pages 188-197.
    5. Fu, Ke & Xu, Jiayan & Miao, Zhaowei, 2013. "Newsvendor with multiple options of expediting," European Journal of Operational Research, Elsevier, vol. 226(1), pages 94-99.
    6. Shachat, Jason & Tan, Lijia, 2012. "An experimental investigation of auctions and bargaining in procurement," MPRA Paper 42409, University Library of Munich, Germany.
    7. Liu, Shuren & Liu, Changgeng & Hu, Qiying, 2013. "Optimal procurement strategies by reverse auctions with stochastic demand," Economic Modelling, Elsevier, vol. 35(C), pages 430-435.
    8. Alok Gupta & Stephen Parente & Pallab Sanyal, 2012. "Competitive bidding for health insurance contracts: lessons from the online HMO auctions," International Journal of Health Care Finance and Economics, Springer, vol. 12(4), pages 303-322, December.
    9. repec:wyi:wpaper:002055 is not listed on IDEAS


    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


    Access and download statistics


    When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:55:y:2009:i:5:p:763-780. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.