Decentralized Mechanism Design for Supply Chain Organizations Using an Auction Market

Abstract

Traditional development of large-scale information systems is based on centralized information processing and decision making. With increasing competition, shorter product life-cycle, and growing uncertainties in the marketplace, centralized systems are inadequate in processing information that grows at an explosive rate and are unable to make quick responses to real-world situations. Introducing a decentralized information system in an organization is a challenging task. It is often intertwined with other organizational processes. The goal of this research is to outline a new approach in developing a supply chain information system with a decentralized decision making process. Particularly, we study the incentive structure in the decentralized organization and design a market-based coordination system that is incentive aligned, i.e., it gives the participants the incentives to act in a manner that is beneficial to the overall system. We also prove that the system monotonically improves the overall organizational performance and is goal congruent.