InterNeg Teaching Notes 1/11
E‐procurement: Multiattribute Auctions and Negotiations GregoryE.Kersten
InterNegResearchCenterandJ.MolsonSchoolofBusiness,ConcordiaUniversity,Montreal
1. Introduction Procurementisthepurchaseofgoods andservices.Itinvolvesplanningandformulationofthere‐
quired specifications, search and selection of suppliers, agreement on specifications with one or
more suppliers leading to a purchase, and warranty, repairs and other post‐sale activities. Buyers
needtouseoneormoreofthemarketexchange(trade)mechanismsinordertomakeapurchase.
Thisnoteintroducesthekeyconceptspertainingtoprocurement.
1.1 Marketplaces Markets are unique places where firms and people who have similar interests meet and interact.
Sellershavesimilargoodstoofferandtheyobtaininformationabouttheircompetitors,customers,
aswellasofpotentialsuppliersofgoodstheymayneed.Buyerslookforsimilargoodsandtheyob‐
taininformationaboutotherbuyersandtheirinterests.Suppliersoffergoodsbuyers’seekaswellas
othergoodstheymayneed.Alltheseinteractionsarenotsolelyofeconomicnature,marketsarealso
socialinstitutions.Theresultsofmarketinteractionsincludetheestablishmentofbusinessrelation‐
shipsandsettingupandchangingsupplychainsandbusinessnetworks.
Pricenegotiation(i.e.,hagglingorbargaining)istheprimaryformofbuyer‐sellerinteractionsused
onmanytraditionalmarkets.Itis,however,nottheonlywaytobuyandsell;professionalizationof
commercialactivitiesand thesettingupofpermanentstoresdiminishedtheroleofthetraditional
hagglingoverprice.Insomesituationssuchhagglingmayevenbefrownedupon.Although,negotia‐
tion continues to be an important way to make deals, other ways gained popularity and they may
providebetterresults.
Modern manufacturing with its standardized goods along with the appearance of small and large
storesandinstitutionsactingasamiddlemanbetweenproducersandbuyerswereinstrumentalto
the establishment of another form of exchange, i.e., the posted price also known as catalog. Today
postedpriceismostwidelyusedfordailypurchases(e.g.,groceries)andforpurchasesofcommodi‐
tiesandstandardsupplies(e.g.,furnitureandofficesupplies).Whilebothpostedpriceandnegotia‐
tionremaininuse,informationandcommunicationtechnologies(ICTs)popularizedthethirdformof
interaction,thatis,auction.
http://interneg.concordia.ca/
Acknowledgments: The publication of the InterNeg Papers and Notes has been supported by the Natural Sciences and Engineering Research Council, the Social Sciences and Humanities Research Council, and the J. Molson School of Busi‐
ness, Concordia University. © G.E. Kersten. The paper cannot be reprinted in any form without its author’s explicit consent. ITN 1/11 2 1.2 Valuations The main purpose of markets, from the viewpoint of neo‐classical economics, is the valuation of
goods.Theirsupplyiscomparedwiththedemandallowingforthedeterminationofpriceatwhich
thegoodsaresold.Participantswhobuythegoodsvaluethemhigherorattheirprice.Thosewho
sellthemobtainvalue(money)thatexceedsorisequaltothetotalcoststheyincurred.
Buyers’individualvaluationsmaybehigherthanthemarketprice.Iftheseevaluationsdonotaffect
theoveralldemand,thenthebuyerachievesasurplus;hepurchasesagoodforlessthanhewouldbe
willingtopay.Similarly,asellermaygetasurplusifhesellsgoodsforlessthanthetotalcosts(which
mayincludecertainprofitlevel).Whenthemarketisinequilibriumandthetotalamountofthebuy‐
ers’andsellers’surplusreachesitsmaximum,thenthemarketisefficient.
Individual valuations are subjective; they depend on a particular situation and preferences of the
participant.Intheoryitdoesnotmakeanydifferenceregardingpriceasnoonewouldpaymorethan
themarketpriceirrespectivelyoftheperson’svaluationofthegood.Similarly,noonewouldsellfor
lessthanthemarketpriceeventhoughbydoingthishewouldobtainprofitgreaterthansomeother
sellers.Inreality,becausemarketshavefrictionsandbuyersandsellersarenotautomatons,thein‐
dividualization of valuations and their differences regarding price introduces an opportunity that
somebuyersandsellersmayutilize.Thatis,onemaytryextractingadditionalvaluethroughaoneto
onenegotiation.
1.3 Market transactions Marketsprovidetheframeworkwithinwhichpeoplecaninteractandengageinbuyingandselling.
Thepurposeofthesetransactionsistoincreasethewelfareofbothbuyersandsellers.
Inadditiontobuyingandselling,peopleusemarketsinordertoassessorvalueproductsandser‐
vices.Arguably,thevaluationprocessisasimportantastheactualexchangebecauseitenabletodis‐
coverinformationabouttheothers’valuationandcompareitwithownvaluation.Thecomparisonof
valuations may be used in making decisions regarding production, consumption and savings. Indi‐
vidual valuations provide information to market participants which they can use to determine the
changesoftheirwelfarecausedbymarkettransactions.
Valuationscanbedeterminedusing:(1)money(leadingtothepricediscovery);(2)similarordiffer‐
ent goods; or (3) an abstract measure such as utility. The usefulness of money and other goods or
servicesisthattheycanbeeasilycomparedandexchanged.Thesemeasuresmaybeusedasstand‐
ards(i.e.,everygoodcanbevaluedindollars,euro,yuan,etc.).Theyalsoaggregatealldifferentat‐
tributevaluesofagoodintoasinglecomparablevalueofmoney.Thisisbothstrengthandadraw‐
back:strengthbecauseeverymarketparticipantcaneasilycomparedifferentgoodsandaweakness
becausethevalueisthesameforeverypersonirrespectivelyoftheindividuals’willingnessandabil‐
itytobuyandthedifferencesintheirtasteandpreferences.
2. Commerce value chain Anyactivity,tobeperformed,requiresexpendingsomeresources.Anexchangeofgoodsissuchan
activityandtheresourcesneededtoundertakeitmaybequitelarge(e.g.,shipmentofflowersfrom
HondurastoEuropebyairplane,ortransportationofoilbypipelinesandships).
Transactioncostscoverallexpenseswhichthebuyerandsellerinvolvedinatransactionincurinthe
processofbuyingandselling.Theyarethecostsofdoingbusinessandtheyincludetime,effort,and
money.Foranorganizationtofunctionovertimethetotalcostassociatedwithtransactionsshouldbe
smallerthanthetotalvaluethetransactionbringstothisorganization.
Theactivitieswhicharerequiredtorealizeatransactionareknownascommercevaluechain.The
ITN 1/11 3 value established during the commercial activity needs to be added to the product value before it
reachesthemarket.Thisvalueisalsoknownas“marketfriction”asitisthecostsofengaginginand
completingbusinesstransactions.
TypicalactivitieswhichbuyersandsellersundertaketodobusinessareillustratedinFigure1.The
totalcostsofactivitiesincludedinthisvaluechainaretransactioncosts.
Figure1.Buyerandseller’svaluechains
Transaction costs often arise before the exchange is initiated. For the buyer, they include product
discovery and evaluation and they may be done without the sellers’ knowledge and involvement.
Sellersknowabouttheseactivitiesandthereforetheyneedtolearnaboutbuyer’srequirementsand
also educate them about the products and their qualities. Also, locating potential trading partners,
checkingtheirreliability,comparingthem,contactingandselectingonetodobusinessrequirestime
andeffort.
A transaction is initiated by the buyer who engages in the specification of terms describing price,
characteristics of the product (e.g., configuration, volume and color), product delivery, upgrades,
warranties and service. The interactions between the buyer and seller are successful when they
agreeontheterms.
Transaction may not take place if the seller does not provide certain assurances and services. Be‐
causethepurchasedependsonthem,theyarealsoincludedinthecommercevaluechainandassoci‐
atedtransactioncosts.Theseadditionaltermsrequirethattheparticipantsengageinpost‐settlement
activities(Figure1).
3. Exchange mechanisms Contemporary markets are governed, both directly and indirectly, by many different rules. ). One
particularsetofrulesdirectlyspecifiesthewaysthetransactionscantakeplace.Thissetofrulesis
knownasexchangemechanisms.
Therearethreemaintypesofexchangemechanismsusedineconomictransactions:(1)postedprice
(catalogues);(2)auctions;and(3)negotiations.Thebasicstructureofeachmechanismisschemati‐
callyillustratedinFigure2.Iassumethatathefigureillustratessituationwiththreesellersandfive
buyersbutthediscussionremainsthesameiftherolesareswitchedandthreebuyerswanttopur‐
chasegoodssuppliedbyfivesellers.
Therearethreetypesofactivitiesindicatedbythelines:(1)thedashedlinedepictsasingleactionof
activating a mechanism; (2) the dotted line depicts scanning or observation of prices; and (3) the
continuouslinedepictsrepetitiveactionsoftheparticipants.
ITN 1/11 4 Figure2.Threetypesofexchangemechanisms
Figure21‐3(a)showsthreesellerswhopostthepriceofthegoodstheywanttosell.Fivebuyersob‐
servethepricesandmaketheirpurchasingdecisions.Thesellersmaychangepricefordifferentrea‐
sons,includingthenumberoftransactionsandvisitstothephysicalorvirtualstore.However,asell‐
er cannot post more than one price for a good at any given time. If she wants to give a volume or
someotherdiscount,thensheneedstopostthisdiscountaswell.
In an auction, shown in Figure 21‐3(b), the sellers activate the mechanism and then, similarly to
postedprice,theyremainpassive.Inanauction,however,itisthebuyerwhodeterminestheprice
ratherthantheseller.
Theimportantdifferencebetweenanauctionandinpostedpriceispricedetermination.Thepriceis
posted by the seller, so he determines it no individual buyer can affect its value. In auction buyers
competeanddecideontheprice.Thebuyerwhoiswillingtopaythemostgetstheproduct.Thus,
catalogisapassivemechanismandauction—anactivemechanism.
Anotherdifferenceisthatincatalogsandauctionsonesideactivatesthemechanism(thissideisof‐
tencalledownerorinitiator)and,followingthisact,thissidedoesnotparticipateintheprocess.The
personsrepresentingtheothersideusetheactivatedmechanism.Incontrast,innegotiations,both
sidesactivelyparticipateinthetransactionprocess.Unlessnotedotherwise,theownerisassumedto
betheseller.
4. Procurement A supply chain is an organized system of independent organizations which exchange information,
productsandservices.Therangeofexchangesisfromnaturalresourcesandrawmaterialstocom‐
ponents,tofinishedproducts.Supplychainslinkvaluechainsofindividualorganizations(Figure1)
forminganetworkthroughwhichinformation,goodsandservicesflow.
Organizations belonging to a supply chain engage in its management which involves planning and
coordination of procurement and logistics. Procurement is the acquisition of goods and services,
whilelogisticsistheorganizationandmanagementoftheirflowfromthepointoforigin(seller)to
thepointofdestination(buyers).
About70%ofcorporaterevenueisspentonpurchasing;savingsof5%translateintoverysignificant
amountsofmoneyforcompaniesofanysize.
4.1 Auctions 4.1.1 Sealed bid auctions Traditionally,single‐roundsealedbidauctionshavebeenusedinprocurement.Suppliersaregiven
ITN 1/11 5 requests for quotations (RFQs) and asked to submit a bid (quotation) by a given deadline. At the
deadline,thebidsareopenedandthebestbidisselected.
4.1.2 Reverse auctions Reverseauctionswereintroducedinprocurementinmid‐1990sandwithinafewyearstheygained
popularity.Largecorporationsandgovernmentdepartmentsbeganusingthembecauseoftheprom‐
isesofcuttingcostsandmakingtheprocurementprocessmoreimpartialandtransparentthanface‐
to‐facenegotiations.
Reverseauctionsestablishacompetitivesettingwhichmayresultinthediscoveryofatruemarket
price.Fieldstudiesreportedsavingsofbetween6and37%onindirectmaterialsandbetween2and
22%ondirectmaterials.Firmsreportedsavingsof15%to20%;(e.g.,GErantheirfirstreverseauc‐
tioninlate1999;in2000theysaved16%whichamountstomore$500million).
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Inadditiontopricereductionofpurchasedgoods,otherbenefitsincludeshorteningoftheprocure‐
mentprocess(fromdaysorweekstoafewhours),increasedbuyerreach,thecreationofnewmar‐
kets,andinformationtransparencyandpricevisibility.
Figure3.Reverseauctionsinprocurementprocess
Verypositiveperspectivesontheuseofreverseauctionsinprocurementhavebeenaccompaniedby
strong criticisms. Some studies have shown that savings are greatly overstated, supplier relation‐
ships are damaged, and distrust among incumbent suppliers is created. Some organizations and
businessassociationsconsiderreverseauctionsantitheticaltobusinessvalues,compromisingquali‐
ty.Forexample,CypressSemiconductorCorp.announcedinMay2009thatthecompanypolicyisnot
toparticipateinreverseauctions,andtheSuretyAssociationofCanadaandtheCanadianConstruc‐
tionAssociationstronglydiscouragetheiruse.
Some of these criticisms are unfounded, reflect lack of familiarity and limited experience, and con‐
flicting reports. Others, however, note the limitations of reverse auctions, which are suitable for
transactional buyer‐seller relationship focused on obtaining best price, medium‐to‐short term con‐
tract,andrequiringlittlecollaboration.Theyareusefulinpurchasingwhenthereareseveralormore
qualifiedsuppliersofgoodswhichcanbeclearlyspecifiedandareoflow‐to‐mediumcomplexity.
TheprocurementprocesswiththeuseofreverseauctionisshowninFigure3.Thesellersbiduntil
thedeadlineisreachedornoselleriswillingtoofferlowerpricethantheoneofferedinthelastbid.
ITN 1/11 6 Atthattime,theauctionendsandthebuyerverifiesthebidandworkswiththewinneroncontract
preparation.
4.1.3 Multiattribute reverse auctions Reverse auctions are single‐attribute, sellers bid only on price. However, over 90% of purchasing
managersbasedtheirdecisionsonbothpriceandnon‐pricevariables(e.g.,durability,warranty,ser‐
vice,lead‐time,andtrust).Therefore,thereisaneedtodevelopmulti‐attributeauctionsthatcanbe
used in e‐procurement. The first step in this direction is the design of an auction procedure. Such
auctions can be experimentally studied. The most recent survey of experimental auction research
doesnotincludeanymulti‐attributeauctionexperiment
Theconsiderationofattributesotherthanprice,describingtheitemand/orthebidders,introducesa
levelofcomplexitythatisdifficulttoaddressformanyreal‐lifesituations.Therefore,manyorganiza‐
tionstendtomodifythepuresingle‐attributeauctions.Themodificationsinclude:
Pre‐selectionofbidderssothatonlybidderswhoareknowntomeettheadditionalcriteriaarein‐
cluded;
1. Givingincumbentsanadvantagebecausetheirqualificationsareknown;and
2. Theuseofdisclaimerssuchas“thelowestbidmaynotbeawardedthecontract”.
Theresultsofsuchauctionmodificationsaremixedbecauseofcollusionandselectionofinferiorof‐
fers.Insomesituationstheprocessbecomesanauctioninnameonly,asisthecasewithanauctionin
whichneitherthewinnernoranyotherbidderisawardedthecontract.
AttheInterNegResearchCentrewehavedevelopedauniquemultiattributeauctionprocedureand
implementeditintheImarassystem.Theprocedureisbasedonautomaticallygeneratedlimitsets,
these are sets which the sellers get and which they have to obey if theywant to submit their bids.
Setsaregeneratedforeveryroundoftheauction.Anexampleofsetsgeneratedforthreeroundsis
giveninFigure4.
Figure4.Limitsetsinmultiattributereverse
Thelimitsforeachroundaredeterminedbasedonthebestbidinthepreviousroundandadditional
parameterssetupbythebuyer(e.g.,thenumberoflimitsetscalculatedforeachround).Thismeans
thattheremaybemorethanonesetoflimitsineachround.
ThreesetspereachroundareshowninFigure4;theyareindicatedbyrectanglesboundedbyrows;
everybidintherectangleisadmissible.
Bestbidsforthebuyerareindicatedbystars;bestbid(b1)inround1(R1)isusedtogenerateSet1.
ITN 1/11 7 Anothersetisgeneratedusinganalternativethatisasgoodforthebuyerasbidb1.Inround2(R2),
thesellersareinformedthattheirbidshavetobelongeithertoSet1orSet2.Thatis,theyaregiven
thefollowinglimits:
Set1:Price≤9andLeadtime≤6;andSet2:Price≤10andLeadtime≤5.
Inround2,thesellersmadefourbids(b2,b3,b4andb5),bidb5isthebestanditisusedtogenerate
thefirstlimitsetforround3.Thesecondlimitsetisgeneratedbyanalternativethatisasgoodfor
thebuyerasb5.
Figure5.Reverseauctionsinaprocurementprocess
WeimplementedthisprocedureinImarasusingourInviteplatform.1Abidconstructionandsubmis‐
sionscreenisshowninFigure5.Thelimitsetsareincludedinthetablesurroundedbydottedgreen
line.Thenumbersindarkredrepresentlimits;onerowinthetablecorrespondstoonelimitset.In
thisauction,thereare3limitset.Thesellermakesabidbyselectingvaluesthatmeetlimitsofoneof
thesesets.
4.2 Negotiations Anegotiationisasignificantlymoreflexibleexchangemechanismthanauctions.Itallowstheparties
tousedifferentstrategiesandtactics;theymaycooperateorcompetewhileanauctionisnaturally
competitive. The negotiators may present arguments and counter arguments; they may add issues
(attributes)tothetableorremovethem.
Animportantaspectofnegotiationsiseducationandjustification.Thenegotiatortriestoeducateher
counterpartabouther(organizationsherepresents)needsandrequirements.Shealsoprovidesjus‐
tificationsothathercounterpartmaybetterunderstandtherequirementsandaccept(whichisthe
negotiator’sexpectation).Hercounterpartdoesthesameandthroughthisexchangeofinformation
bothsideslearnabouteachother.
1AvideodemonstratingtheImbinssystemisavailableat:http://invite.concordia.ca/imaras/demo_a.cfm
ITN 1/11 8 4.2.1 Bilateral and multi‐bilateral negotiations Commercialnegotiationsaretypicallybilateralormulti‐bilateral.Inbilateralnegotiationsweassume
thatneitherthebuyernorsellerisseekingothersellersorbuyers,respectively.Suchnegotiationmay
takeplaceafterthesellerhasselectedthebestbuyerorwhenthereisanongoingrelationshipbe‐
tweenthetwosidesandtheyneedtojointlydeterminesomedetailsregardingthetrade.
Multi‐bilateralprocurementnegotiationsarecommonwhenthebuyerseeksthebestvalueandisin
norelationshipwiththesellerotherthanthecommercialone.When,forexample,apersonwantsto
buyahouseoracar,heoftenchecksanumberofthemandengagesindiscussiononsalecondition
with owners, agents or dealers. This means that she conducts multiple bilateral negotiations; each
onewithadifferentside(seeFigure5).
Figure5.Multi‐bilateralnegotiations
Ingeneral,multi‐bilateralnegotiationsareinitiatedbythe“single‐person”side,forexample,thebuy‐
erwhocontactstwoormorecardealers.Theprocessmaybesequentialorsimultaneous.
Insequentialnegotiationsthebuyerbeginsnegotiatingwithonesellerand triestoobtain thebest
possibledealfromthisseller.Beforeclosingthisnegotiation,thebuyercontactsanotherdealerand
initiatesanotherbilateralnegotiation.Atanypointintimethebuyermayhaveopenedtwoormore
bilateralnegotiations;hemayclosesomeofthemandopennewones.
Theprocessofsequentialmulti‐bilateralnegotiationsisillustratedinFigure5(a).Thebuyerinvites
sellersS1andS2attimet0.S1seesanotheropportunitytosellhergoodsandterminatestheprocess.
ThebuyertheninvitesS3.HealsoinitiatesnegotiationswithS4andS5attimet2andt3,respectively.
Sometime later he terminates the negotiation with S3. Between t3 and tT he could have negotiated
withothersellers(indicatedbydashedline).AttimetTthebuyermakeshisdecisionandselectsthe
seller.Thereverseis,however,alsopossible,thatis,thesellermayacceptanoffermadebythebuyer
terminatingthisandallothernegotiations(unlessthebuyerwantstopurchaseseveralthesameor
similargoodsfromdifferentsellers).
Sequentialmulti‐bilateralnegotiationsintroduceanopportunityforthebuyertonegotiateabetter
dealthanasingle‐bilateralone.Thisopportunityariseswhentherearemanysellerswhoarewilling
tocompete,butitisnotcostsfree(frictionless).Time,communicationandcognitiveefforts,andpos‐
sibly money requirements, are significantly greater than in a bilateral negotiation. These costs in‐
creasewitheverynegotiationbut,forthebuyer,thevalueofthedealdoesnothavetobecomegreat‐
er. This creates a dilemma for the buyer (the negotiator single‐side) whether the costs associated
withanadditionalnegotiationarelowerthanthevaluedifferencethisnegotiationcauses.
The procurement process with the use of multi‐bilateral negotiations is shown in Figure 6. The
sellersmakeoffersandthebuyermaymakecounteroffersorrequestnewimprovedoffers.Thebuy‐
ermaymakethesameoffertoeverysellerormakedifferentoffers.Thisimposessignificantlymore
cognitiveandtimerequirementsonthebuyerthanitwasthecaseinbidding(Figure3).Theprocess
endswheneitherthebuyeracceptsanofferoroneselleracceptsthebuyer’soffer.
ITN 1/11 9 Request for quotation
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Procurement
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Request for information & order planning
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Bilateral
negotiation
Offer & counter‐offer exchange & evaluation
Sellers
Figure6.Negotiationsinprocurementprocess
4.2.2 Imbins negotiation system AnothersystembuiltusingourInviteplatformisImbins.2Thissystemallowsformulti‐bilateralne‐
gotiations which share some similarities with multi‐attribute auctions. An offer construction and
submissionscreenisshowninFigure7.Aswecansee,inImbinstherearenolimitsets;instead,of
thetable(seeFigure5),thisspaceisreservedformessagesthatthenegotiatormaysendtohercoun‐
terpart(s).
Figure7.Negotiationsinprocurementprocess
2AvideodemonstratingtheImbinssystemisavailableat:http://invite.concordia.ca/imbins/demo_b.cfm(illustrating
thebuyer’sactivities)andathttp://invite.concordia.ca/imbins/demo_s.cfm(illustratingtheseller’sactivities). ITN 1/11 4.3
10 Procurement portfolio matrix EmpiricalstudiesofsupplychainmanagementandB2Btransactionsresult,amongothers,inaport‐
folioofsupplierrelationship.Thisportfolio,firstproposedbyKraljic(1983)postulatesthefollowing
fourtypesofbuyer‐supplierrelationships:
1. Strategicrelationshipwithfewspecializedsuppliersispostulatedwhentherequiredgoods
or services are either unique or critical for the production. This relationship takes place
whenswitchingtonewsuppliersisdifficultand/orverycostly;and
2. Leverage takes place when the required products are complex and very important for the
buyerbuttherearemanycapablesupplierswhocanprovidethem;
3. Acquisitioninvolveslowcostsstandardizedgoodswhichdonothavecriticalimpactonpro‐
duction.Thesegoods,however,arenotreadilyavailableortherearenotmanysupplierswho
providethemintherequiredamounts;and
4. Noncriticalgoodsareeasilyavailablefrommultiplesources.
Thedifferencesintheimportanceofgoodsandservicesforthecompany,theiravailability,andthe
degreeoftheirstandardizationmayrequiretheuseofdifferentexchangemechanisms.Anoverview
oftheportfoliomatrixandassociatedmechanismsisgiveninFigure8.
TheprocurementrelationshipsshowninFigure8areindicativeandtheydonotcoverallpossibili‐
ties.Exchangemechanismsaresuggestedforeachformoftherelationship.
In acquisition of complex goods which have low priority for the firm, the preferred mechanism is
posted price. The relationship between the buyer‐seller should be good but not necessarily very
close.Ifpossiblepurchasingshouldbeautomated.
Purchasingofcomplexandcriticalgoodsrequiresstrategicrelationshipbetweenthepartiesandthe
procurement mechanism is the negotiation. Good close relationship should be maintained and the
parties need to inform each other about any changes made during the production and distribution
processes.
Figure8.Portfoliomatrixandexchangemechanisms
Noncriticalexchangesinvolvesimplegoodsthathavelowpriorityforthefirmand,therefore,ahighly
ITN 1/11 11 efficientmechanismispreferable.Automationofpurchasingisprobablythebestsolution,providing
thatthepricesareperiodicallyreviewed.Reverseauctionsmaybeusedaslongastheydonotcon‐
sumetoomanyresources.Thisisthetypeofrelationshipwherethenegotiationsoftwareagentsmay
beused.
Leveragetypeinvolvessimplegoodswhichareimportantforthefirm.Becausethegoodsaresimple,
reverse‐auctionsmaybeused,theirhighimportancemay,however,requirenegotiationsoramixof
thesetwomechanisms(e.g.,anauctionfollowedbythenegotiationwithafewoftheselectedsuppli‐
ers).
Time‐orientationisoneoftheattributesoftherelationshipsspecifiedintheprocurementportfolio
matrix.Itiscloselyassociatedwiththebuyer‐supplierrelationship(i.e.,thesetwoattributesarenot
independent)andtheybothaffectthepurchasingprocess.
Recentstudiesconfirmedthatbusinessorganizationsfollowtheseguidelinesinimplementingtheir
procurement strategies. Auctions tendto be used when the relationshipbetween the auction‐giver
andbiddersisnoncriticalandwhengoodsaresimpleandhavealow‐to‐mediumpriority.Negotia‐
tionsareusedwhentherelationshipiscriticalandgoodsarecomplexandhaveacritical‐to‐highpri‐
ority.