Dynamic supply chain formation: integrating multi-attribute auctions and finite capacity scheduling

Dynamic supply chain practices offer the prospect of more efficiently matching suppliers and producers in the face of changing market conditions. Prior research aimed at studying dynamic supply chain formation problems has generally ignored constraints imposed by the finite capacity of manufacturers. In this paper, we consider the problem faced by a manufacturer who can procure key components from a number of possible suppliers through multi-attribute reverse auction mechanisms. Bids submitted by prospective suppliers include a price and a delivery date. The manufacturer has to select a combination of supplier bids that will maximize its overall profit, taking into account the revenue generated by each product it has to deliver, the costs of the components it has to procure as well as late delivery penalties (incurred for missing promised delivery dates to its own customers).