Two-tier Supplier Base Efficiency Evaluation Via Network DEA: A Game Theory Approach

In today's competitive markets, most firms try to reduce their supply costs by selecting efficient suppliers using different techniques. Several methods can be applied to evaluate the efficiency of suppliers. This paper develops generalized network data envelopment analysis models to examine the efficiency of two-tier suppliers under cooperative and non-cooperative strategies where each tier has its own inputs/outputs and some outputs of the first tier can be fed back to the second tier. Since the proposed models become nonlinear, an efficient heuristic method is proposed as an alternative solution, which can be used instead of existing time consuming methods like parametric linear programming approach. A numerical example is presented to exhibit the implementation of the proposed models. Also, for simulated data, results of proposed heuristic method and parametric linear programming are compared to demonstrate the validity and efficiency of the proposed approach.