Supplier Selection by Multi-attribute Combinatorial Bidding

Supplier selection is a challenging decision that has strategic importance for organizations. Cost is no longer the sole factor in the selection of suppliers, and the complexity of this issue arises from the interplay of several situation-specific criteria (such as total cost, CO_2e emissions, development time, lead time) as well as the combinatorial nature of this problem. This paper proposes an approach based on combinatorial optimization (integer linear programming) combined with multi-criteria value analysis to establish priorities and trade-offs among the defined criteria for combinatorial bidding. The approach was employed in a real-world decision, the selection of a supplier for a cosmetics packaging set for a new product line. The obtained solution is compared against standard multi-criteria optimization (without a combinatorial auction formulation) and also against single criterion optimization. The paper also reports on the challenges and advantages of applying the framework in the case study.