Combinatorial and Quantity-Discount Procurement Auctions Benefit Mars, Incorporated and Its Suppliers

TLDR

Simple auctions neglect the complex business constraints needed for strategic sourcing, and outcomes must create win‑win solutions that sustain long‑term relationships, with these factors being as important or more than price. The Mars‑IBM team developed a procurement auction website that lets buyers incorporate complex bid structures and business constraints into strategic‑sourcing auctions. The website offers multiple auction alternatives that match procurer needs and supplier capabilities by optimally selecting bids subject to business‑rule constraints in a dynamic environment. Considering geographic, volume, and quality factors benefits both parties, with suppliers reporting time efficiency, transparency, and fairness, and monetary gains significant for both Mars 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.number1traders.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.