The Design of Incentives in a Combinatorial Exchange for Intra-Enterprise Logistics Services

Abstract

The exchange of transportation capacities is an approach that is well established in the practice of logistics. Few of these mostly web-based market places, however, are able to take into consideration the synergies that can be generated by the appropriate combination of the transportation lanes of different carriers. One method of achieving this is to employ combinatorial auctions, which allow bidding on bundles of lanes. This article deals with a combinatorial auction for the intra- enterprise exchange of logistics services. In the real world case considered here, we implement and analyze such an exchange process in an enterprise that is related to the food sector and organized in a profit center structure. In the intra-enterprise exchange process, each profit center is able to release delivery contracts for outsourcing if the geographic location of a customer allows reduced-cost delivery by another profit center in the neighborhood. However, the success of such an exchange system depends on the incentive for the profit centers to release delivery contracts into the outsourcing process. This incentive is given by a distribution mechanism that enables the profit centers to share the cost savings achieved for the entire enterprise. The proposed mechanism is able to change the balance between the reward for the in or outsourcing of delivery contracts or to award either a higher share of the total cost savings to a profit center for in or outsourcing respectively.