Application of multi-dimensional procurement auction in single-period inventory models

Procurement is one of the major activities in the Manufacturing Resource Planning (MRP II), which is closely coupled with inventory management. Any improvement in this area will have a direct impact on the performance of the entire supply chain. Auction mechanism can be a successful procurement method when there are several potential suppliers available. In this work we consider a single-period inventory model when the selection of the supplier is done through a reverse auction and bids consist of several attributes, namely price, shortage quantity and lead time. The multi-dimensionality of the bid increases the complexity of the underlying problem and thus, we used an approximate approach that provides us with a means to determine an estimate for the optimal inventory decision variable, in this case the target level. This estimate is needed for the initiation of the auction and the procurement process. The Monte-Carlo simulation method was used to investigate the goodness of the approximate analytical method.