Procurement Market Design

Astradi offers software and services for conducting bundle auctions and eRFQs. The solution offers a number of advantages that are unique on the market of eSourcing tools:

• Additional significant savings (up to 19% reported) compared to traditional auctions and eRFQs.
• Process optimization and time savings for the sourcing professional.
• Automatic consideration and quantification of complex business rules.
• Improved relationships with suppliers through transparency in multi-item negotiations.

The key to realizing cost savings in large sourcing negotiations is leveraging economies of scale and scope. Suppliers often experience cost complementarities due to economies of scope or due to shared transportation costs. For example, a supplier might be able to provide a bundle price for a set of different types of tires in the automotive industry that is significantly lower than the sum of bids on the individual tires. Similarly, a supplier might be able to provide maintenance services for a set of production sites that are geographically close to his headquarter at a lower price than the service for production sites that are very distant.

Sequential or simultaneous auctions on individual items are challenging for suppliers and purchasing managers often fail to realize savings due to cost complementarities. The supplier might be able to win one item, but not another item of the bundle. Bidding on bundles of items avoids many of the strategic pitfalls in sequential or simultaneous auctions. Empirical evidence has shown significant cost savings in certain markets with economies of scope. If purchasing managers allow for bundle bids on multiple items, bundle optimization is crucial in finding cost minimizing solutions. Research in this field has produced a variety of auction formats ranging from sealed-bid bundle RFQs to iterative designs, which typically differ in the feedback (ask prices) provided to the bidders and can lead to different outcomes in terms of total procurement cost.

Astradi provides consulting to design auctions and RFQs for multiple items. The Astradi OptiTrade Platform is a unique set of software tools that allows procurement managers to design high-stakes multi-item auctions and RFQs. It provides specific algorithms to select an optimal set of suppliers and provides advanced decision support to bidders. Bidding becomes easy for suppliers resulting in reduced transaction cost and a significant impact on total spend.