“Now or Later?” When to Deploy Qualification Screening in Open-Bid Auction for Re-Sourcing

Abstract

Designing Open-bid Procurement Auction with Supplier Qualification Screenings Manufacturers often use re-sourcing initiatives to keep their suppliers’ pricing competitive; e.g., new entrant suppliers are identified and invited to compete with the incumbent supplier for supply contracts in an open-bid auction. To ensure that entrant suppliers have the capability of executing the contract, the conventional approach for many manufacturers is to conduct qualification screenings on all the entrants prior to auction bidding and only allow qualified entrant suppliers to compete in the auction. In “‘Now or Later?’ When to Deploy Qualification Screening in Open-Bid Auction for Re-Sourcing”, Zhang, Chen, and Katok explore an alternative arrangement of this process where all entrant suppliers are invited for bidding first before qualification screenings are selectively conducted afterward to determine the contract winner. This new approach helps reduce the waste of manufacturers’ screening efforts on suppliers with uncompetitive bids but in the meantime introduces incentives for less competitive supplier bidding behavior. They provide analytical and numerical evidence that this new approach could be very effective in managing manufacturers’ procurement costs.