Reverse auctions

Bertsekas, D., Castanon, D. and Tsak-nakis, H. (1993) Reverse auction and the solution of inequality constrained assignment problems. SIAM J Optim,... 

This trend is likely to continue (and possibly accelerate) with the emergence of e-commerce and its market-making models such as exchanges and reverse auctions. The only areas that appear safe are those true specialties where suppHers have a unique technology or product. 

A reverse auction is where a buyer solicits offers from sellers by specifying terms of trade that include product specification, price, delivery schedule and so on. Once interested sellers are notified and assembled, they may compete by lowering their offers until one is accepted by the buyer. Alternatively, offers may be accepted as sealed bids until one is chosen. In this regard, a reverse auction is more akin to a buyer auction, commonly found in business procurement and government contracting. 

But an online implementation of a reverse auction—e.g., Priceline.com—deals with more mundane varieties of consumer goods and services. At Priceline.com website (http //www.priceline.com). 

Like classified ads, the reverse auction mechanism is commonly found in physical markets. For example, it is used to determine suppliers and contractors in laige-scale projects. In some seller s markets where products are perishable, sellers compete to unload their products before they become spoiled or unserviceable. Not surprisingly, PriceUne.com s main source of revenues is the airline industry, where unsold seats are perishable products that cannot be saved and resold at a later date. 

A problem is categorizing a buyer-seller relationship as a B when it is really a C. The clicks-and-bricks movement allows the buyer to choose whether he or she wants to deal in a B environment or a C environment. For example, in the dot.com era and more recently, companies try to establish markets for goods and services through brokerage sites and reverse auctions. Sometimes these work, providing execution in a B environment. At other times, a Box C interaction is appropriate. Companies have the opportunity to define supply chains for customers wanting different levels of collaboration in their decision making. 

Market Structure An auction provides a mechanism for negotiation between buyers and sellers. In forward auctions a single seller is selling resources to multiple buyers. Alternately, in reverse auctions, a single buyer is sourcing resources from multiple suppliers, as is common in procurement. Auctions with multiple buyers and sellers are called dou-... 

Multi-Unit Auctions. Consider an auction for multiple units of the same type of item, and in particular the reverse auction setting where the focus is to minimize the cost subject to bid requirements. We will consider four cases (i) divisible bids, (ii) indivisible bids with XOR bid structures, (iii) price schedules, which can be viewed as a compact representation for a generalized XOR with indivisible bids. Suppose in all of these cases that a buyer wants to buy Q identical units of the same item. 

Reverse auction. Combinatorial auctions are also proposed for procurement problems in markets with one buyer and multiple sellers. The reverse combinatorial auction is formulated as a set covering problem rather than a set packing problem. An interesting (and complicating) issue that arises in this setting is that there are various business rules that are used to constrain the choice of winners. These business rules appear as side constraints in the winner determination problem. The winner determination problem with no side constraints can be written as ... 

Let J denote the set of attributes of an item, with Kj to denote the domain of attribute j (assumed discrete), and K = K X... x Km denote the joint domain, with m = J. Consider a reverse auction setting, and write v x) > 0 and Ci x) > 0 to denote the buyer s value and the cost of seller i for attribute bundle X e K. Of course, enumerating these valuations and cost functions over the cross-product of attribute levels can be costly for participants in a market. 

Davenport et al [32] have studied the use of reverse multi-unit auctions with volume discounts in a procurement setting. Winner determination formulations are provided in Section 3.2.2, where we also discuss the introduction of business rules as side constraints, which is an important consideration in practical electronic markets. A combinatorial auction is used for single units (lot) of multiple items, with all-or-nothing bids are allowed and nonlinear prices are used to feedback information. Volume discount auctions are also used, when multiple units of multiple items are being procured and for the restricted case of bids that are separable across items. Another consideration in procurement auctions is that the outcome should be such that the final prices should be profitable for both the buyer and the suppliers, i.e. a win-win outcome. The competitive equilibrium property can be used to operationalize this notion of achieving a win-win outcome [32]. 

An emergent research direction is the examination of mechanisms for decentralized allocation (for multi-item procurement) in the presence of capacity constraints at the suppliers. We discuss two mechanisms that have been proposed in the literature. Both are reverse auctions with a single buyer and multiple suppliers but differ in (i) bid structure that they support and (ii) the feedback that is provided. Both mechanisms assume that a partial allocation against a bid is acceptable to the bidders. 

Multi-unit Auctions Multiattribute Auctions Procurement Reverse Auctions Capacity constrained allocation mechanisms Double Auctions and Exchanges... 

Relatedly there has been a growth in internal software applications to improve information and system and process optimisation (such as Peoplesoft, Oracle, SAP and other enterprise planning systems). On the buyer-side there has also been a growth in supplier relationship management (SRM) and leverage tools and techniques, such as reverse auctions. 

Reverse auctions Here the buyer advises the product and quantity they want, and suppliers complete on line by offering lower prices. In a reverse auction it would not be regarded as ethical for the buyer to lodge proxy bids. 

Distribution channels The selling channels supported by an enterprise. These may include retail sales, distribution partner (e.g. wholesale) sales, original eqnipment manufacturer (OEM) sales, Internet exchange or marketplace sales and Internet anc-tion or reverse auctions sales. 

Eledronic RPQ.T FP generation Eledronic procurement d MRO Selected indred materials Open Loop SRM Sydems Intranet disperses information Price focused reverse auctions Electronically enabled internal order transfers... 

In a fixed-price contract, price is determined through a bidding process (reverse auction). The supplier bids a fixed price but must satisfy the buyer s stipulated specifications in the RFQ. As the supplier bears all the risk of cost escalation, s/he is... 

As explained earlier, the relief supplies are procured for two buckets prepositioned inventory, and real time deliveries. Procurement can therefore be structured in the way discussed with respect to the Griffin Manufacturing case, discussed in Chap. 6. The supplies for prepositioned inventory can be procured in a proactive mode - a long-term contract with low-cost suppliers and ample delivery lead time. Such contracts are usually of the fixed-price type, where price is determined through a bidding process (reverse auction). The supplier bids a fixed price but must satisfy buyer stipulated specifications on the RFQ. The supplier bears all risk associated with cost escalation, but he/she prices his product appropriately to cover his production risk. Clearly, a fixed-price contract is easy to implement and inexpensive to monitor. 

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