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A Bid Analysis Model with Business Constraints for Transportation Procurement Auctions

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  • Song, Jiongjiong
  • Regan, Amelia C
  • Nandiraju, Srinivas

Abstract

Business to business (B2B) auctions have become a dominant mechanism used by large shippers to procure contracts for transportation services from logistics companies. The bid analysis problem is of critical importance to shippers and determines which contracts are assigned to specific carriers and at what price. In practice this problem is further complicated by the consideration of shipper business rules, such as restrictions on carrier numbers, limits on the number of individual packages awarded and preferences for incumbent carriers. This paper examines the case in which bidding packages are mutually exclusive. This is referred to as a non-combinatorial auction. In practice, this type of auction is preferred to a full combinatorial auction because it allows the auctioneer (the shipper) to maintain control of the packages and creates much less cognitive strain for bidders (trucking companies). A mathematical programming model for the bid analysis problem is presented and heuristic construction algorithms and Lagrangian relaxation based algorithms are developed to solve the problem. Numerical results show that our Lagrangian relaxation based heuristics perform better than other heuristics and that the solutions are very close to optimal.

Suggested Citation

  • Song, Jiongjiong & Regan, Amelia C & Nandiraju, Srinivas, 2008. "A Bid Analysis Model with Business Constraints for Transportation Procurement Auctions," University of California Transportation Center, Working Papers qt5766c7r1, University of California Transportation Center.
    • Handle: RePEc:cdl:uctcwp:qt5766c7r1
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    1. Marshall L. Fisher, 1981. "The Lagrangian Relaxation Method for Solving Integer Programming Problems," Management Science, INFORMS, vol. 27(1), pages 1-18, January.
    2. John O. Ledyard & Mark Olson & David Porter & Joseph A. Swanson & David P. Torma, 2002. "The First Use of a Combined-Value Auction for Transportation Services," Interfaces, INFORMS, vol. 32(5), pages 4-12, October.
    3. Babaioff, Moshe & Feldman, Michal & Nisan, Noam & Winter, Eyal, 2012. "Combinatorial agency," Journal of Economic Theory, Elsevier, vol. 147(3), pages 999-1034.
    4. Song, Jiongjiong & Regan, A C, 2003. "Approximation Algorithms for the Bid Construction Problem in Combinatorial Auctions for the Procurement of Freight Transportation Contracts," University of California Transportation Center, Working Papers qt3j7034z2, University of California Transportation Center.
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