An Academic's Take on Optimization and Competition

They're some blogs that I should add to my "everyday" reading list, but I usually only get to a few times a week. And one of those -- which will soon be on my official bookmarks -- is CombineNotes. Paul Martyn, CombineNote's blogger-in-chief, has had some great posts of late. And even if they're self-trumpeting, I think the pragmatic thought leadership that well-argued vendors blogs can generate is great for everyone. In fact, my only beef with CombineNotes is that there's not more of it! Like Tim Minahan and David Bush, two other vendor bloggers, it would be great to see Paul move to a daily publication schedule (even if most of what he writes under this scenario is just commentary, not analysis).

A recent CombineNotes entry that is worth spending a few minutes reading features an interview with MIT’s and Harvard’s Professor David Parkes. Parkes is a computer scientist, engineer and fellow who has taken an interest in optimization and strategic sourcing. When questioned about the importance of market feedback in optimization -- rather than a "sealed" environment which is more typical of optimization approaches from other vendors -- Parkes notes that "Feedback to suppliers, be it in the form of target prices, information about whether (and on what) a supplier is leading, or information about the volume currently awarded, helps a supplier refine their bid across rounds of an event. Bid refinement might add additional coverage or make a supplier's bid more competitive for some piece of the spend. Perhaps a supplier will be better able to embrace business rules or preferences of the buyer, or make improved use of expressive bidding."

Parkes supports the notion of competitive feedback and related market mechanisms (unlike some academics, who think the anti-lean-anti-Christ himself is responsible for the creation of reverse auctions): "Through feedback, the bid taker (buyer in reverse auctions) can best leverage the power of competition by allowing suppliers to get a better measure of the market and understand what they must do to win an event. Through feedback, the bid taker can help to reduce mistaken, or 'irrationally exuberant' bids from suppliers and drive more realistic expectations about where the market will clear. Through feedback, the bid taker can help suppliers make decisions on how to best use their own competitive advantage and supply characteristics to win business."

Jason Busch

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