The encyclopedia · Strategy & Leadership · Operational decision · 2002
Mars let suppliers bid bundles, not single prices, in procurement auctions
Mars and IBM built auction software for all-or-nothing and quantity-discounted bids, making strategic sourcing a win-win for a $14B buyer and its suppliers.
Mars, Incorporated
the move
Simple reverse auctions ignore the complex business constraints that strategic sourcing must respect, such as geography, volume, and quality.
The Mars-IBM team created a procurement auction web site supporting bundled all-or-nothing bids and quantity-discounted bids, with optimal bid selection subject to business rules in a dynamic environment.
Outcomes were designed to be win-win so long-term supplier relationships would survive. Feedback from participating suppliers highlighted time efficiency, transparency, and fairness, and the monetary benefits to Mars and its suppliers were significant.
why it works
- Bundling lets suppliers exploit synergies across items
- Quantity discounts matched Mars's volume economics
- Explicit fairness kept suppliers returning to the market
- IBM's optimizer turned constraints into a tractable selection problem
what transfers
Strategic sourcing is a constrained allocation problem, not a take-it-or-leave-it price; bundled bids surface value simple auctions never see, while fairness keeps the relationship alive.
what came after
The project was a 2002 Franz Edelman Award finalist. The Interfaces paper reported that feedback from participating suppliers highlighted time efficiency, transparency, and fairness, with significant monetary benefits on both sides of the ledger.
references
- Combinatorial and Quantity-Discount Procurement Auctions Benefit Mars, Incorporated and Its Suppliers
- 6 Corporations Vie for Best Practices Award
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