Auction-Based Mechanisms for Electronic Procurement

Abstract

Auction-based mechanisms are extremely relevant in modern day electronic procurement systems since they enable a promising way of automating negotiations with suppliers and achieve the ideal goals of procurement efficiency and cost minimization. This paper surveys recent research and current art in the area of auction-based mechanisms for e-procurement. The survey delineates different representative scenarios in e-procurement where auctions can be deployed and describes the conceptual and mathematical aspects of different categories of procurement auctions. We discuss three broad categories: 1) single-item auctions: auctions for procuring a single unit or multiple units of a single homogeneous type of item; 2) multi-item auctions: auctions for procuring a single unit or multiple units of multiple items; and 3) multiattribute auctions where the procurement decisions are based not only on costs but also on attributes, such as lead times, maintenance contracts, quality, etc. In our review, we present the mathematical formulations under each of the above categories, bring out the game theoretic and computational issues involved in solving the problems, and summarize the current art. We also present a significant case study of auction based e-procurement at General Motors.