Expressive commerce and its application to sourcing: how we conducted $35 billion of generalized combinatorial auctions

Sourcing professionals buy several trillion dollars worth of goods and services yearly. We introduced a new paradigm called expressive commerce and applied it to sourcing. It combines the advantages of highly expressive human negotiation with the advantages of electronic reverse auctions. The idea is that supply and demand are expressed in drastically greater detail than in traditional electronic auctions, and are algorithmically cleared. This creates a Pareto efficiency improvement in the allocation (a win-win between the buyer and the sellers) but the market clearing problem is a highly complex combinatorial optimization problem. We developed the world's fastest tree search algorithms for solving it. We have hosted $35 billion of sourcing using the technology, and created $4.4 billion of hard-dollar savings plus numerous harder-to-quantify benefits. The suppliers also benefited by being able to express production efficiencies and creativity, and through exposure problem removal. Supply networks were redesigned, with quantitative understanding of the tradeoffs, and implemented in weeks instead of months.

[1]  Tuomas Sandholm,et al.  Algorithm for optimal winner determination in combinatorial auctions , 2002, Artif. Intell..

[2]  Anshul Kothar,et al.  Approximately-strategyproof and tractable multi-unit auctions , 2003 .

[3]  Subhash Suri,et al.  Approximately-strategyproof and tractable multi-unit auctions , 2003, EC '03.

[4]  Ronald M. Harstad,et al.  Computationally Manageable Combinational Auctions , 1998 .

[5]  Tuomas Sandholm,et al.  An Implementation of the Contract Net Protocol Based on Marginal Cost Calculations , 1993, AAAI.

[6]  Tuomas Sandholm,et al.  Issues in Computational Vickrey Auctions , 2000, Int. J. Electron. Commer..

[7]  Yoav Shoham,et al.  Empirical Hardness Models for Combinatorial Auctions , 2005 .

[8]  Yoav Shoham,et al.  Taming the Computational Complexity of Combinatorial Auctions: Optimal and Approximate Approaches , 1999, IJCAI.

[9]  Vincent Conitzer,et al.  Combinatorial Auctions with Structured Item Graphs , 2004, AAAI.

[10]  Craig Boutilier,et al.  Eliciting Bid Taker Non-price Preferences in (Combinatorial) Auctions , 2004, AAAI.

[11]  Ho Soo Lee,et al.  Special Issue: 2002 Franz Edelman Award for Achievement in Operations Research and the Management Sciences: Combinatorial and Quantity-Discount Procurement Auctions Benefit Mars, Incorporated and Its Suppliers , 2003, Interfaces.

[12]  T. Sandholm.  Limitations of the Vickrey Auction in Computational Multiagent Systems , 1996 .

[13]  Tuomas Sandholm,et al.  eMediator: A Next Generation Electronic Commerce Server , 1999, AGENTS '00.

[14]  Thomas Morris,et al.  Reinventing the Supplier Negotiation Process at Motorola , 2005, Interfaces.

[15]  Anthony M. Kwasnica,et al.  A New and Improved Design for Multiobject Iterative Auctions , 2005, Manag. Sci..

[16]  Craig Boutilier,et al.  Solving concisely expressed combinatorial auction problems , 2002, AAAI/IAAI.

[17]  Subhash Suri,et al.  BOB: Improved winner determination in combinatorial auctions and generalizations , 2003, Artif. Intell..

[18]  Craig Boutilier,et al.  Bidding Languages for Combinatorial Auctions , 2001, IJCAI.

[19]  Subhash Suri,et al.  Optimal Clearing of Supply/Demand Curves , 2002 .

[20]  David Levine,et al.  Winner determination in combinatorial auction generalizations , 2002, AAMAS '02.

[21]  Doug Smock.  How P&G buys plastics , 2004 .

[22]  David Levine,et al.  Changing the Game in Strategic Sourcing at Procter & Gamble: Expressive Competition Enabled by Optimization , 2006, Interfaces.

[23]  Y. Sheffi,et al.  OPTIMIZATION‐BASED PROCUREMENT FOR TRANSPORTATION SERVICES , 2003 .

[24]  R. McAfee,et al.  Analyzing the Airwaves Auction , 1996 .

[25]  Subhash Suri,et al.  Market Clearability , 2001, IJCAI.

[26]  Tuomas Sandholm,et al.  Information-theoretic approaches to branching in search , 2006, AAMAS '06.

[27]  S. Rassenti,et al.  A Combinatorial Auction Mechanism for Airport Time Slot Allocation , 1982 .

[28]  Subhash Suri,et al.  Side constraints and non-price attributes in markets , 2006, Games Econ. Behav..

[29]  Craig Boutilier,et al.  Solving Combinatorial Auctions Using Stochastic Local Search , 2000, AAAI/IAAI.

[30]  Avid,et al.  Experiments Testing Multiobject Allocation Mechanisms , 2003 .

[31]  Sven de Vries,et al.  Combinatorial Auctions: A Survey , 2003, INFORMS J. Comput..

[32]  David Levine,et al.  CABOB: A Fast Optimal Algorithm for Winner Determination in Combinatorial Auctions , 2005, Manag. Sci..

[33]  Tuomas Sandholm,et al.  Optimal Winner Determination Algorithms , 2005 .

[34]  Noam Nisan,et al.  Bidding and allocation in combinatorial auctions , 2000, EC '00.

[35]  F. Kelly,et al.  A Combinatorial Auction with Multiple Winners for Universal Service , 2000 .

[36]  D. Lehmann,et al.  The Winner Determination Problem , 2003 .