PROVE THE VALUE
Online Procurement Auctions Benefit Mars and Its Suppliers
Mars, a $14 billion company, is one of the world's largest privately owned businesses, with operations in food, pet care, drinks, vending, and electronic automated payment systems. With an enormous number of suppliers — each with an individualized contract — Mars sought to develop an online auction system to make the purchasing process more efficient, both for its own companies and the vendors with which it collaborates.
The O.R. Solution
Mars contracted with IBM and its operations research experts. The Mars-IBM team created a procurement auction Web site that enables buyers to incorporate complex bid structures (such as bundled all-or-nothing bids and quantity-discounted bids) and business constraints into strategic-sourcing auctions. The solution supports several alternatives to simple auctions that help match Mars' needs as procurer with the capabilities of suppliers, including optimal bid selection subject to constraints based on business rules in a dynamic environment. The solution also helps ensure win-win solutions for both procurer and suppliers, a factor as important as price given the necessity of maintaining long-term supplier relationships.
The monetary benefits to the company and its suppliers were significant. Using auction-based procurement techniques provided an average savings of 5% over the expected costs of negotiations. The ability to consider geographic, volume, and quality factors helped both parties. And feedback from participant suppliers has highlighted the benefits of time efficiency, transparency, and fairness.
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