Combinatorial and quantity-discount procurement auctions benefit mars, incorporated and its suppliers

Abstract

Simple auctions neglect the complex business constraints required by strategic sourcing. The Mars-IBM team created a procurement auction Web site 〈www.numberltraders.com〉 that enables buyers to incorporate complex bid structures (such as bundled all-or-nothing bids and quantity-discounted bids) and business constraints into strategic-sourcing auctions. Outcomes in such auctions must lead to win-win solutions to sustain long-term relationships between procurer and suppliers. These factors are as important or more important than price. The Mars procurement auction Web site supports several alternatives to simple auctions that help match its needs as procurer and the capabilities of suppliers by incorporating optimal bid selection subject to constraints based on business rules in a dynamic environment. The ability to consider geographic, volume, and quality factors helps both parties. Feedback from participant suppliers has highlighted the benefits of time efficiency, transparency, and fairness. Although they reflect just one side of the benefits ledger, the monetary benefits to Mars (a $14 billion company) and to its suppliers are significant.