A Lotting Method for Electronic Reverse Auctions

32 Pages Posted: 26 Aug 2006

See all articles by U. Kaymak

U. Kaymak

Erasmus University Rotterdam (EUR) - Faculty of Economics - Department of Computer Science; Erasmus Research Institute of Management (ERIM)

J. P. Verkade

Independent

H. A. B. te Braake

Independent

Date Written: May 15, 2003

Abstract

An increasing number of commercial companies are using online reverse auctions for their sourcing activities. In reverse auctions, multiple suppliers bid for a contract from a buyer for selling goods and/or services. Usually, the buyer has to procure multiple items, which are typically divided into lots for auctioning purposes. By steering the composition of the lots, a buyer can increase the attractiveness of its lots for thesuppliers, which can then make more competitive offers, leading to larger savings for the procuring party. In this paper, a clustering-based heuristic lotting method is proposed for reverse auctions. Agglomerative clustering is used for determining the items that will be put in the same lot. A suitable metric is defined, which allows the procurer to incorporate various approaches to lotting. The proposed lotting method has been tested for the procurement activities of a consumer packaged goods company. The results indicate that the proposed strategy leads to 2-3% savings, while the procurement experts confirm that the lots determined by the proposed method are acceptable given the procurement goals.

Keywords: Reverse auctions, e-commerce, e-procurement, lotting, hierarchical clustering

JEL Classification: M, M11, R4, D44

Suggested Citation

Kaymak, Uzay and Verkade, J. P. and te Braake, H. A. B., A Lotting Method for Electronic Reverse Auctions (May 15, 2003). ERIM Report Series Reference No. ERS-2003-042-LIS. Available at SSRN: https://ssrn.com/abstract=423651

Uzay Kaymak (Contact Author)

Erasmus University Rotterdam (EUR) - Faculty of Economics - Department of Computer Science ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

J. P. Verkade

Independent

No Address Available

H. A. B. Te Braake

Independent

No Address Available

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