Essays on Procurement with Information Asymmetry.

Abstract

Sourcing, once seen as a tactical function of vertically integrated firms, has today become strategic for firms that now rely on extensive, vertically disintegrated supply chains. Vertical disintegration leads to complex relationships within a supply chain; for example, dependence between firms across different tiers and competition among firms within each tier often coexist. In addition, firms generally harbor private information. The complex relationships and information asymmetry make firms’ interactions highly strategic. How should firms in supply chains of various structures make strategic procurement decisions in the presence of information asymmetry? The three essays in this dissertation study three specific problems on this topic. The essay “Does Pooling Component Demands when Sourcing Lead to Higher Profits?” studies whether pooling purchases for a component used in multiple products with uncertain demands always results in increased profits for the buyer, when the component must be purchased from a sole-source strategic supplier. The essay “Simple Auctions for Supply Contracts” designs a simple and easily implementable optimal procurement mechanism for a newsvendor-like problem, where the buyer’s (newsvendor’s) purchase price is not fixed, but determined through interactions with candidate suppliers who possess private information about their own production costs. Finally, the essay “Price-Quoting Strategies of a Tier-Two Supplier” studies how a tier-two supplier of a crucial component should best quote prices to her tier-one customers, who will compete for an OEM’s indivisible contract based on cost. This dissertation has the potential to help procurement managers understand certain business situations more clearly and make better decisions. In particular, it highlights the impact of information asymmetry on procurement, and suggests strategies to tackle resulting challenges. More broadly, this dissertation adds to the nascent and growing Operations Management scholarship on procurement, and contributes to the field’s general understanding of supply chain management.Ph.D.Business AdministrationUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttps://deepblue.lib.umich.edu/bitstream/2027.42/86363/2/hub_1.pd