abstract: 'The reservation of goods to be produced in the micro, small, and medium

  enterprises (MSME) sector, in the early years after India''s

  independence, addressed the dual needs of development of the industrial

  sector and production of goods. However, these industrial policies

  created an incentive for firms to remain small so that they can continue

  to avail of the benefits provided by the Government. On the positive

  side, the MSMEs typically employ more labor intensive production

  processes and consequently contribute significantly to the provision of

  employment opportunities, generation of income, and poverty reduction.

  But, on the negative side, the policies have also partly facilitated the

  creation of a divide in terms of productivity between the MSMEs and

  large sized firms. In particular the policy raises important questions

  for a firm auctioning supply contracts among suppliers with a

  significant cost differential. In this paper we propose an idea to

  allocate supply contracts wherein a manufacturing firm partitions the

  stochastic demand into mutually exclusive portions and awards each

  portion to a different supplier. We characterize such an optimal

  procurement mechanism when there are two types of suppliers and an

  arbitrary number of demand portions. We show that the optimal

  procurement may require the manufacturer to intentionally withhold some

  demand portion, and this arises when one type of supplier is

  considerably inefficient in serving a demand portion. We extend our

  analysis to the cases with multiple types with two suppliers and two

  types with multiple suppliers. The optimal partition is composed of at

  most six contiguous demand portions, and it may include a detrimental

  demand portion that only generates a negative expected payoff to both

  supplier types. Our demand partitioning mechanism leads to a strictly

  higher manufacturer''s expected payoff than the conventional

  winner-take-all case unless one supplier type completely dominates the

  other. We present numerical experiments that indicate when such a

  mechanism holds the greatest advantage for the buyer.'
affiliation: 'Sohoni, MG (Corresponding Author), Indian Sch Business, Hyderabad, India.

  Chen, Ying-Ju, Hong Kong Univ Sci \& Technol, Sch Business \& Management, Clear
  Water Bay, Hong Kong, Peoples R China.

  Chen, Ying-Ju, Hong Kong Univ Sci \& Technol, Sch Engn, Clear Water Bay, Hong Kong,
  Peoples R China.

  Seshadri, Sridhar, Univ Illinois, Gies Coll Business, Urbana, IL 61801 USA.

  Sohoni, Milind G., Indian Sch Business, Hyderabad, India.'
author: Chen, Ying-Ju and Seshadri, Sridhar and Sohoni, Milind G.
author-email: milind\_sohoni@isb.edu
author_list:
- family: Chen
  given: Ying-Ju
- family: Seshadri
  given: Sridhar
- family: Sohoni
  given: Milind G.
da: '2023-09-28'
doi: 10.1002/nav.21953
earlyaccessdate: NOV 2020
eissn: 1520-6750
files: []
issn: 0894-069X
journal: NAVAL RESEARCH LOGISTICS
keywords: demand partitioning; industrial policy; mechanism design; procurement
keywords-plus: INFORMATION; AUCTIONS; POLICIES
language: English
month: DEC
number: 8, SI
number-of-cited-references: '21'
orcid-numbers: 'Sohoni, Milind/0000-0002-5236-2375

  Sohoni, Milind/0000-0003-0510-7109'
pages: 1037-1053
papis_id: a92970e60cbe833923d539fda80f999a
ref: Chen2021demandpartitioning
researcherid-numbers: 'Sohoni, Milind/E-4894-2015

  chen, ying/HHS-8254-2022

  Sohoni, Milind/E-4894-2015'
times-cited: '2'
title: A demand partitioning framework to reserve production for small enterprises
type: Article
unique-id: WOS:000586041700001
usage-count-last-180-days: '3'
usage-count-since-2013: '29'
volume: '68'
web-of-science-categories: Operations Research \& Management Science
year: '2021'