On E‐Auctions for Procurement Operations

Electronic auctions have revolutionized procurement in the last decade. In many situations, they have replaced negotiations for supplier selection and price setting. While they have often greatly reduced transaction costs and increased competition, they have also encountered problems and resistance from suppliers resenting their intrusion on cooperative supplier/buyer relationships. In response to these issues, procurement auctions have evolved in radical new directions. Buyers use business rules to limit adverse changes. Some procurement auctions allow bidders to offer variants in the specifications of products to be supplied. Most important, some suppliers are allowing bidders to bid on packages of items, not just individual items. This tends to change procurement auctions from zero-sum fights over supplier profit margins to win-win searches for synergies. These changes have opened up many new research areas. Researchers are trying to improve how to deal with the computational issues involved in package auctions and to analyze the new auctions forms that are evolving. In general, equilibrium incentives are not known, and dealing with ties in package auctions is an issue. Computer scientists are analyzing the use of computerized bidding agents. Mechanisms that combine auctions with fixed buy prices or with negotiations need to be analyzed.