Designing Multi-Attribute Procurement Mechanisms for Assortment Planning

Posted: 20 Oct 2012 Last revised: 31 Jan 2014

See all articles by Zhaolin Li

Zhaolin Li

The University of Sydney Business School

Lusheng Shao

The University of Melbourne

Daewon Sun

University of Notre Dame

Date Written: August 9, 2013

Abstract

This research investigates how to design procurement mechanisms for assortment planning. A retailer buys directly from a manufacturer who possesses private information about the per unit variable cost and per variety setup cost. We first develop a screening model to assist the retailer in integrating assortment planning into supply chain procurement processes when only one manufacturer is available. We demonstrate that the screening mechanism is optimal among all feasible procurement strategies. When there are multiple competing manufacturers, we propose a supply contract auctioning mechanism and evaluate its performance. In this mechanism, the retailer announces a contract menu and the manufacturer that bids the highest upfront fee paid to the retailer wins the auction. The winner then chooses and executes a contract from the contract menu. We show that when the retailer uses the optimal screening contract menu as the object in the auction, it achieves the optimal procurement outcome if the screening contract menu does not pay rent to any manufacturer type. This finding sheds light on the connection between screening and auction mechanisms when there exists multi-dimensional private information.

Keywords: Assortment Planning, Multi-Dimensional Mechanism Design, Retail Supply Chain

JEL Classification: D82, M11

Suggested Citation

Li, Zhaolin and Shao, Lusheng and Sun, Daewon, Designing Multi-Attribute Procurement Mechanisms for Assortment Planning (August 9, 2013). Available at SSRN: https://ssrn.com/abstract=2163959 or http://dx.doi.org/10.2139/ssrn.2163959

Zhaolin Li (Contact Author)

The University of Sydney Business School ( email )

Room 490, Merewether Building
Sydney, NSW 2006
Australia

HOME PAGE: http://www.econ.usyd.edu.au/staff/erickl

Lusheng Shao

The University of Melbourne ( email )

198 Berkeley Street
Carlton, 3031
Australia

Daewon Sun

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
645
PlumX Metrics