Strategic Freight Transportation Contract Procurement

Auction based market clearing mechanisms are widely accepted for
conducting business-to-business transactions. This dissertation focuses on
the development of auction mechanism decision tools for freight
transportation contract procurement in spot markets and long-term markets.
Spot markets have found their niche because of the Internet and standard
classic auctions are widely employed. For long-term markets, large
shippers (typically manufacturing companies or retailers) have begun to
use combinatorial auctions to procure services from trucking companies and
logistics services providers. Combinatorial auctions involve very
difficult optimization problems both for shippers and carriers. In the US
truckload market very few carriers have the technical know-how to bid in
combinatorial auctions. To reduce these problems we look at a different
auction scheme termed a unit auction, where the shipper can exploit the
economies of scope in the network and give the carriers the chance to bid
on pre-defined packages similar to ‘lotting’ in supply chain procurement.
Shippers have non-price business constraints, which must be included in
the winner determination problems to closely match shipper business
objectives. We develop allocation formulations incorporating the non-price
business constraints and Lagrangian based heuristics for solving them in
both unit auctions and combinatorial auctions. We provide carrier bidding
framework for classic auctions in spot markets using concepts from
economic auction theory. For bidding in combinatorial auctions, we study
the effects of demand uncertainty, carrier network synergies and strategic
pricing, and shipper’s winner determination problems on carrier bidding
using optimization-based simulation analysis. We also provide a framework
for volume-based contracts using insights from classical transportation
problem.
Further, we also present a mechanism for cross shipper auctions for
shipper collaboration and alleviate logistical inefficiencies like
deadheading and dwell times for carriers. Finally we develop pareto
efficient profit sharing mechanisms among shippers using co-operative game
theory.