A game theoretic analysis in capacity-constrained supplier-selection and cooperation by considering the total supply chain inventory costs

The first models of supplier selection were based on maximizing buyer's interests. Recently, with the growing attention towards supply chain competition and vertical coordination, some researchers propose models that select suppliers based on total supply chain cost. These models usually consider a centralized system to tackle the problem of proper incentives for members in cooperation. Our purpose in this paper is to analyze the selected suppliers and prices that are agreed on in decentralized supply chains. Also we aim to study the conditions in which the selected suppliers are in the benefit of total supply chain. We use the inventory related costs to calculate payoff function of buyer and suppliers. At the beginning of this paper, a centralized model is developed as a benchmark. Then, we investigate the problem in a decentralized supply chain with the suppliers having capacity constraints. In this regard, we use cooperative and non-cooperative game theory to analyze the selected suppliers and total supply chain costs in two scenarios. In the first scenario, suppliers act independently while in the second scenario the suppliers cooperate with each other making coalitions. It is shown that the cooperative model could result in a stable solution with same total supply chain cost as the centralized model and also, when suppliers have equal opportunity costs for each single production capacity, selected suppliers are determined independent from the opportunity cost. But when the suppliers act independently or have different opportunity costs, the selected suppliers are influenced by the opportunity cost that they have. A numerical example clarifies the findings. (C) 2015 Elsevier B.V. All rights reserved.