Reverse auction with buyer–supplier negotiation using bi‐level distributed programming

This study presents a framework for solving a sealed‐bid, multi‐issue, and multi‐sourcing reverse auction problem in which negotiation takes place between the buyer and the suppliers during the bidding process. The problem is formulated as a bi‐level distributed programming model in which the buyer is the upper level decision maker, while suppliers at the lower level make decisions independent of each other. The negotiation process between the buyer and the suppliers is facilitated via the iterative exchange of decision information between the upper and lower levels of the model. The outcome of the sealed‐bid auction is determined using an algorithm designed to establish the optimum quantity allocation and delivery time at the upper level and the corresponding optimized production plans at the lower level. The feasibility of the proposed approach is demonstrated via an illustrative example.