Multidimensional Reverse Auctions
Reverse auctions with several dynamic parameters are adapted to purchasing situations where quality plays a great role.
Let's consider the example of selecting a supplier for servers' maintenance. This service consists in making a technician available to the company to ensure that servers run well and to offer intervention services in case of a breakdown. This service is critical to the company that needs the maintenance services. A server breakdown means important losses for the company.
During the auction suppliers are given the opportunity to submit offers on several lines. These lines are:
- Hourly fee for technicians
- Intervention lead-time
The price parameter in this case is the hourly fee for technicians. MinMax reverse auctions have this in particular that they give the opportunity for buyers to include other dynamic parameters: this means that suppliers will be able to improve their proposals on other aspects than price only during the auction. In this case, this additional parameter is the intervention lead-time in case of a system breakdown. In the RFP that was sent to suppliers, the company stated that it expected at least a 24h intervention but that shorter lead-times would be taken into account by the buyer.
There are two reasons to let the "intervention lead-time" parameter be dynamic during the auction:
- The buyer may not know how far the industry can go as regards intervention lead-time
- The buyer may not know the price for shorter intervention lead-times.
Before the auction, the buyer would have assessed the price his company is ready to pay to see a 2h decrease in the intervention lead-time. Each decrease of two hours in the intervention lead-time can be assessed in terms of money. For example an intervention six hours after a breakdown is more valuable than a 24h intervention. But the buyer should assess before the auction what the cost would be for his company to wait 24 hours instead of 6 hours. It is essential to assess the quality increase that will be offered by suppliers in order to be able to compare proposals during the auction.
Let's assume that three suppliers take part in the auction.
A score is calculated for each supplier according to the two dynamic parameters.
Supplier B wins the auction in spite of the fact that he offers a higher price than its closest competitor. This situation is made possible by the fact that the buyer estimated that he was ready to pay a higher price for a quicker service. The outcome of the auction could have been different according to the buyer's sensitiveness to the different parameters. If price was much more important than the lead-time, supplier B may not have won the auction. |
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