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Optimization of supplier switching with asymmetric information

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Abstract

The buyer-supplier relationship plays a great role in most economic systems. The buying firm usually tries to find a new supplier who provides products with satisfying quality and lower price. A broad branch of literature deals with the development of buyer-supplier relationships, but limited research is on the circumstances under which a buyer should terminate such a relationship and switch to a new supplier. In this paper, the incentive compatibility constraint (IC) which induces the entrant supplier to report his true cost is considered, and the participation constraint (PC) which ensures the entrant supplier to get at least reservation profit is taken into account. Then the supplier switching model is set up to minimize the buying firm’s total procurement cost which includes the transfer payment to the incumbent supplier, the payment to the entrant supplier and the switching cost, and the buying firm’s switching cost is considered as a function of the switching quantity. With the theoretical analysis of IC, PC and the proposed model, the optimal supplier switching strategy can be obtained. Finally, a numerical example is given to illustrate the effectiveness of the proposed model and the switching strategy.

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Authors and Affiliations

  1. Institute of Systems Engineering, Tianjin University, Tianjin, 300072, China

    Mingmao Hu  (胡明茂), Wansheng Tang  (唐万生) & Jianxiong Zhang  (张建雄)

  2. Department of Mechanics, Hubei University of Automotive Technology, Shiyan, 442002, China

    Mingmao Hu  (胡明茂)

Authors
  1. Mingmao Hu  (胡明茂)
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  2. Wansheng Tang  (唐万生)
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  3. Jianxiong Zhang  (张建雄)
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Corresponding author

Correspondence to Wansheng Tang  (唐万生).

Additional information

Supported by National Natural Science Foundation of China (No. 61004015 and No. 71071106) and Program for Changjiang Scholars and Innovative Research Team in University (No. IRT1028).

HU Mingmao, born in 1980, male, doctorate student.

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Hu, M., Tang, W. & Zhang, J. Optimization of supplier switching with asymmetric information. Trans. Tianjin Univ. 18, 149–156 (2012). https://doi.org/10.1007/s12209-012-1809-3

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  • DOI: https://doi.org/10.1007/s12209-012-1809-3

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