Compound mechanism design of supplier selection based on multi-attribute auction and risk management of supply chain

- Supplier selection for a type of divisible goods was investigated.
- We design a two-stage compound mechanism of selecting suppliers.
- This mechanism considers both the risk attributes and commercial attributes.
- The first stage can effectively motivate suppliers to report true information.
- Method of grey correlation degree of mixed sequence is proposed to rank supplier(s).

The quality of the supplier base affects the competitiveness of firms and the attendant supply chain. The supplier selection decision is key to effective supply chain management. This paper investigates the problem of supplier selection under multi-source procurement for a type of divisible goods (such as coal, oil, and natural gas). By considering both the risk attributes and the attributes under a commercial criterion, we design a new two-stage compound mechanism for supplier selection based on multi-attribute auction and supply chain risk management. In the first stage, a multi-auction mechanism is established to determine the shortlist among all qualified suppliers based on four attributes (quality, price, quantity flexibility, and delivery time reliability) under a commercial criterion. In the second stage, seven risk attributes against the shortlisted suppliers are further considered, and a new ranking method based on grey correlation degree of mixed sequence is proposed to rank the finalists and to select the final winners. Moreover, the implementation, availability, and feasibility of the two-stage compound mechanism are highlighted by using an example of the multi-source procurement of electricity coal. This presented compound mechanism may well improve the procurement efficiency of divisible goods and greatly reduce the procurement risk.