Online reverse auctions research in marketing versus SCM: A review and future directions

An online reverse auction (ORA) is a dynamic procurement mechanism that allows suppliers to compete in real time via a platform to gain a buyer’s business. The ORA is a technological tool introduced in the late 1990s, gaining proponents and detractors among practitioners and academics. Remarkably, while practitioner interestin ORAs has grown, related marketing and supply chain management (SCM) research has declined. This contradiction between theory and practice suggests the need to conduct a systematic review to provide readers with a state-of-the-art understanding of ORAs and recommend fruitful avenues for further research. We focus on the marketing literature and contrast the findings with SCM literature, in such an analysis practical relevance is stressed. Our study offers three main contributions: (1) integration of the cumulative marketing knowledge on ORAs in the 2002–2020 period, (2) development of a three-layer framework of the ORA domain (i.e., conceptualization, ORA as a process, and research setting), and (3) construction of a new research agenda to deal with scholarly challenges and emerging trends.Xunta de Galicia | Ref. GPC ED431B 2022/10Universidade de Vigo/CISU

Simultaneously Managing Procurement Costs and Risks.

The average US manufacturer spends 40-60% of its revenue to procure goods and services. Transcending its more tactical beginnings in vertically integrated firms, today the procurement function serves as a vital gatekeeper to low-cost and low-risk inputs for a firm. Strategic procurement involves operational processes such as supplier qualification screening to identify capable suppliers and also economic processes such as auctions and mechanism design to negotiate terms and prices with suppliers. Reflecting these challenges, the dissertation research studies how companies can simultaneously manage procurement costs and risks. The dissertation consists of three essays. The first essay adopts an optimal mechanism analysis to study how a buyer can best use a reverse auction in combination with supplier qualification screening processes to determine which qualified new supplier to contract with. The main takeaway for practitioners is that the standard industrial practice of fully qualifying all suppliers before the auction can be improved upon by judiciously delaying all or part of the qualification screening process until after the auction. The second essay extends the insights of the first essay to a setting where a buyer conducts an auction with her qualified incumbent supplier and a possibly unqualified entrant, and shows that the incumbent will strategically drop out of the auction early to forestall a bidding war if the buyer delays the entrant's qualification screening until after the auction. The third essay examines how a buyer can choose suppliers from different geographic regions to mitigate region-specific cost shocks to ``non-price costs" covering logistics, tariffs, shipping insurance and commissions. It shows that the buyer's optimal diversification decision depends on her degree of bargaining clout, i.e., her ability to impose auction mechanisms to curtail suppliers' windfall profit-taking. The more bargaining power the buyer has, the more she prefers a diversified supply base.Ph.D.Business AdministrationUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/64797/1/wanzhixi_1.pd

Two Stage Procurement Processes With Competitive Suppliers and Uncertain Supplier Quality

This paper considers a sourcing problem faced by a manufacturer who outsources the manufacturing of a product to one of several competing suppliers, whose cost and quality capabilities are unknown. We consider a two-stage sourcing process in which the first stage is the qualification stage, while the second stage is the supplier selection stage. In the first stage, the manufacturer exerts effort to learn about the quality level of each of the suppliers and then must determine the set of qualified suppliers, subject to some tolerance for error. In the second stage, the manufacturer runs a price-only procurement auction, in which the qualified suppliers compete for the manufacturer’s business.We model this two-stage sourcing process with the goal of obtaining insights into manufacturer’s optimal decisions. We seek to determine the optimal qualification standard, the optimal amount of effort to be exerted in the qualification process and the appropriate tolerance for error in the qualification process, and to understand the interactions between these decision variables. We are particularly interested in understanding how the manufacturer can design the process to 1) ensure the firm only sources from qualified suppliers and 2) encourage competition among the suppliers during supplier selection

Three Essays on Managing Competitive Bid Procurement.

Procurement has emerged as a critical function, yet a challenging topic, since in many firms procurement operations are complex, and laced with misaligned incentives and information asymmetry between buyers and suppliers. This dissertation explores three different contexts that arise from a buyer’s lack of information. The first essay explores the value of cost modeling in competitive bid procurement, to understand if, how and when cost modeling should be deployed. I show that although bid competition sometimes duplicates the information gleaned by cost modeling, the latter can still be beneficial when it helps the buyer set an effective reserve price. Then I analyze how the buyer can gain the most benefit through cost modeling. Specifically, I characterize which supplier(s) to learn about, which portion(s) of the costs to learn, and how deeply and broadly the buyer should learn for general supply base topologies. The second essay studies the problem that a buyer's request for quotes (RFQ) contains an error that triggers re-design and associated supplier windfall profit. Surprisingly, I find that RFQ error encourages suppliers to submit lower bids with anticipation of future windfall profit. I also find that supplier disparity in error-detecting expertise generally hurts the buyer. Furthermore, I propose a "pre-pay" and “error-bounty” approach to stem supplier windfall profit and induce knowledgeable suppliers to divulge the existence of RFQ error. The third essay considers whether a buyer should exclude or include an incumbent supplier in the auction. Excluding the incumbent allows the buyer to set an aggressive reserve price while including the incumbent in the auction drums up competition with one more bidder. I find that the buyer’s decision depends on the incumbent’s and entrants’ cost distributions: When the incumbent’s cost is expected to be substantially different from the entrants’ (either much lower or much higher) and has low uncertainty, excluding the incumbent is the better option; Conversely, when the incumbent’s cost is comparable to the entrants’ and has similar amount of uncertainty, the buyer prefers inviting the incumbent to the auction.PhDBusiness AdministrationUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/102447/1/yinyan_1.pd

Development of the commodity strategy: the case of sidel

The thesis will address the development of the sourcing strategy in Sidel, a manufacturing company that provides packaging equipment for liquids such as water, carbonated and non-carbonated soft drinks, sensitive beverages like milk, and liquid dairy products. It is developed the sourcing strategy structure that characterizes every commodity, with a particular focus on the commodity execution process. Then, it is discussed a concrete case: the one of Nitro Dozers. In order to achieve the goal, it is used a systematic approach that focuses on different steps, from the Product overview and Spend analysis to the supplier assessment and benchmarking. After defining the commodity strategy, it be deepened the new supplier qualification process: it is required when the company decided to purchase from a new supplier. The ultimate goal of this dissertation is the definition of the purchasing strategy that meets the targets and mitigates the supply risk for the Company

Strategic cost management in a global supply chain

Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management; and, (S.M.)--Massachusetts Institute of Technology, Dept. of Mechanical Engineering; in conjunction with the Leaders for Manufacturing Program at MIT, 2004.Includes bibliographical references (p. 100).In the face of an economic downturn, cost has become a focal point of supply chain management. Cost management is increasingly being recognized as a vital core competency needed for survival. As companies transition from being vertically integrated to pursuing increasingly outsourced manufacturing strategies, modeling and monitoring the total cost of manufacturing products has become crucial, and complicated. In the context of the automated test equipment industry, this thesis explores the impact of outsourcing on product cost and cost management practices. It examines prevailing cost management practices with reference to design and procurement, as well as methods to leverage information technology and re-engineer business processes to manage "spend" effectively and efficiently. It surveys capabilities that are available through software and examines cost-benefit tradeoffs that have to be addressed in selecting such systems.by Venkatesh G. Rao.S.M.M.B.A

Information Disclosure in Open Non-Binding Procurement Auctions: an Empirical Study

The outcome of non-binding reverse auctions critically depends on how information is distributed during the bidding process. We use data from a large European procurement platform to study the impact of different information structures, specifically the availability of quality information to the bidders, on buyers' welfare and turnover of the platform. First we show that on the procurement platform considered bidders indeed are aware of their rivals' characteristics and the buyers preferences over those non-price characteristics. In a counterfactual analysis we then analyze the reduction of non-price information available to the bidders. As we find, platform turnovers in the period considered would decrease by around 30%, and the buyers' welfare would increase by the monetary equivalent of around 45% of turnover of the platform

Outsourcing Competition and Information Sharing with Asymmetrically Informed Suppliers

This paper studies an outsourcing problem where two service providers (suppliers) compete for the service contract from a client. The suppliers face uncertain cost for providing the service because they do not have perfect information about the client's type. The suppliers receive differential private signals about the client type and thus compete under asymmetric information. We first characterize the equilibrium of the supplier competition. Then we investigate two of the client's information sharing decisions. It is shown that less information asymmetry between the suppliers may dampen their competition. Therefore, the client does not necessarily have the incentive to reduce information asymmetry between the suppliers. We characterize the conditions under which leveling the informational ground is beneficial to the client. We also find that under the presence of information asymmetry (e.g., when the suppliers have different learning abilities), sharing more information with both suppliers may enhance the advantage of one supplier over the other and at the same time increase the upper bound of the suppliers' quotes in equilibrium. Consequently, the suppliers compete less aggressively and the client's payoff decreases in the amount of shared information. The findings from this study provide useful managerial implications on information management for outsourcing firms

When to Deploy Test Auctions in Sourcing

We investigate when a buyer seeking to procure multiple units of an input may find it advantageous to run a “test auction” in which she has incumbent suppliers bid on a portion of the desired units. The test auction reveals incumbent supplier cost information that helps the buyer determine how many entrants (if any) to recruit at a cost prior to awarding the remaining units. The optimal number of entrant suppliers to recruit follows a threshold policy that is monotonic in the test auction’s clearing price unless the underlying supplier cost distribution is not regular. When setting her reserve price in the test auction, the buyer uses supplier recruitment as her “outside option”: if the reserve price is not met in the test auction, the buyer recruits new suppliers and runs a second auction. We compare the attractiveness of the test auction procedure relative to the more conventional procedure in which the buyer auctions off her entire demand in one auction. Since the buyer can choose ex ante which procedure to use, we propose using whichever has lower ex ante total (purchase plus recruitment) cost. Finally, using an optimal mechanism analysis, we find a lower bound on the buyer’s cost, and use that cost as a benchmark to show that our proposed sourcing strategy performs well given its ease of implementation

Wood-based construction project supplier selection under uncertain starting date

There is a growing interest in supply management systems in today's competitive business environment. Importance of implementing supply management systems especially in home construction industry is due to the fact that several risks arising from different sources can adversely affect the project financially or its timely completion. Some risks of construction projects are out of managers' control while other risks such as supply related ones can usually be controlled and directed by effective managerial tactics. In this paper, we address the supplier selection problem (SSP) in wood-based construction industry (housing projects) in the presence of project commencement uncertainties. Based on the suppliers' (vendors') reaction towards these uncertainties in the delivery time, we explore two cases: (a) supplier selection with buyer penalty for a delay (SSPD) where the price of product increases with the delay; (b) supplier selection with quantity reduction for a buyer delay (SSQRD). Three heuristic-based supplier selection approaches are proposed and tested on randomly generated data sets. The proposed approaches show promising result