Caterpillar, Inc: Consolidating Packaging Material Vendors to Reduce Supply Chain Costs

Abstract

Caterpillar purchases products and parts from over 1,000 suppliers worldwide. Suppliers select packaging material vendors and pass related costs to Caterpillar. To consolidate this vendor base, the team designed and implemented a combinatorial auction that allows for single-product bids along with bids on bundles of products to receive quantity discounts. The team developed a tool for selecting winning vendors through an integer program with business constraints. The solution is estimated to provide an annual savings of $700K-$1M in the Midwest region, and is scalable to be implemented globally.