CASE #2: MARS INCORPORATED: ONLINE PROCUREMENT Harvard Case Solution & Analysis

CASE #2: MARS INCORPORATED: ONLINE PROCUREMENT Case Solution

  • The secondary goal of the Mars regarding auction was not be dependent on the limited suppliers but the challenge for the prevention of dependency was to cut out the administrative overhead of the large number of suppliers after an auction.
  • Mars also wanted to reduce the risk by bounding the total dollar amount won by the one supplier. But the challenge with the implementation of this strategy was the will of supplier. For instance, if the supplier has opportunity to gain large amount from the different slots then why would he go for one slot only?
  • Mars wanted to introduce the two-phased bidding in which the winner suppliers of first round were then put able to reformulate their bids in the second round. But for the implementation of this strategy, Mars were required to set the rules in case of tie.

Among all the challenges, the most important technical challenge was

  • The determination of such combination of bids that can optimize the cost of Mars by minimizing the cost. It was a critical issue just because of the reason that Mars had to identify the optimum combination in just few minutes.
  1. Using a linear programming framework and the data from case Exhibit 1, formulate and solve the problem of finding the cost-minimizing set of bids that meet Mars’ business requirements and determines the winning suppliers. (Ignore the requirement that first bid wins in the case of ties.)

The framework of linear programming comprises of the following

  • Selection of the solver using simplex LP
  • Selection of the cost as the target
  • Provision of constraints as per the requirements of the cost minimization
  • Constraints are designed as per the sensitivity information
  • The solver has been applied to the prices and the volume of the information from the price report
  • Applying the solver, last bid showed the lower value of the bid because of to be positive than other bids
  • The optimal cost incurred is $56450
  1. How can the requirement that first bid wins in the case of ties be met within the optimization framework?

Mars wanted to be independent of the few suppliers and hence went for the option of Request for Quotations (RFQs). By using this RFQ, suppliers would be able to select the auction. Different bundles had to be selected by the suppliers forming a large number of bids by each supplier. After meeting the requirement of the company by the bidders, company would announce the winning bidder.

Additionally, in the case of tie, first bid wins could be met with in the framework of optimization as it traces the pattern of auction rounds that comprises of two principles. The first participant would win and later on after the round 1, new bid was required that must be lower than the current. It assist the company to bind the purchase by accepting the required inventory at lower cost when a large number of suppliers are competing for the request of product of the company.

  1. Could a Mars-type combinatoric auction be operated without the use of optimization?

Combinatoric auction is what when bidders are allowed to bid on the combination of goods instead of a one good. Not only bidder is allowed to expose his preference in combinatoric auction, but also economic efficiency is improved by this. It provides benefits to both the buyer and supplier. The combinatoric auction of Mars comprises of the multiple auctions; Standard Reverse Auction in which Request for Quotation (RFQ) is used, and sequence wise rounds auction. Mars-type combinatoric Auction could be operated without using the framework of optimization..............

 

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