Research Problem Of Supplier Selection Based On Non-cooperation Game Theory

Along the irresistible trend of globalization, Supply Chain Management is playing an increasingly important role in companies'operation. As the beginning of the chain, supplier now is more than a outsider which provides initials, but a critical partner that greatly influences the company's core competence. However, how to choose a supplier wisely is not an easy question to answer. Firstly, as a newly developed academic, usually Chinese companies have difficulties in adopting supply chain management tools in practices. Secondly, different departments within the company have different requirements over supplier, which makes it ever difficult to make a decision that pleasing everyone. For example, Procurement Department is more focusing on reducing purchase price, maintaining a long partner history and close relationships; while Production Department is more favored with high on-time-in-full (OTIF) rate, high quality and advanced technical capability. Thirdly, subjective issues are inevitable in choosing supplier, which usually weaken the visibility of management.The aim of this thesis is to develop a compulsory method to support decision-making of choosing supplier. The method is based on Non-cooperation Game Theory, and is developed through two steps.First, the question of "how to choose a supplier" was considered in a constrained condition that only requirements of Procurement Department and Production Department were taken into account. The question was transferred into a Complete Information Static Game, and the requirements were converted through Analytic Hierarchy Process (AHP). Then Mixed Strategy Nash Equilibrium was used to produce a "best" answer.Secondly, subjective influences were added into consideration. As these influences are difficult to control and define, the problem was transferred into an Incomplete Information Static Game accordingly. The game then was analyzed with Bayesian-Nash Equilibrium to produce a more practical result. At the end of this thesis, this method was tested with data from Company A. The test result has demonstrated that whilst maintain the visibility of management, choosing supplier with this method could effectively balance the requirements from different Departments, so to enhance the company's core competence and maximize profitability.