Study of two-tier vendor selection and coordination mechanism

Vendor selection is important for developing vendor chain partnership. With existing literature works as the base, this paper improves the model of vendor selection and develops a mixed-integer programming model for two-tier vendor selection. In this model, the performance levels of a vendor´s vendor will be considered. Two-tier vendor selection model will increase the benefit of all members on the supply chain, however, it may increase the cost of some members and thus coordination becomes necessary to benefit all parties. This paper sets up benefit division model according to characteristics of two-tier vendor.