Integrating production scheduling and transportation procurement through combinatorial auctions

Abstract

This study uses the winner determination problem (WDP) to integrate auction transportation procurement with decisions related to production scheduling. The basic problem arises when a manufacturer has to clear a combinatorial auction to decide whether to cover transportation needs by using the in-house fleet or to procure transportation through auction. Thus, the manufacturer should include an additional decision level by integrating the WDP with production scheduling to gain efficiency and achieve savings in the logistics system. To the best of our knowledge, this is the first time production and transportation procurement problems are being solved simultaneously in an integrated manner. The study proposes a mathematical formulation and develops two heuristic approaches for solving the integrated problem. Extensive computational experiments and sensitivity analyses are reported to validate the model, assess the performance of the heuristics, and show the effect of integration on total cost.