Gregor Berz, Evguenia Shprits, Thorsten Velten: How to Define Cherries to Pick in Industrial Procurement

We introduce a new approach to the bundling of lots in procurement auctions and other business tendering processes. Based on a Competition Matrix filled with provider historical prices, a division of the demand into partial bundles (“Cherries”) is determined, which aligns with the providers’ specializations according to their price patterns.

In a world with perfect information, the IFAMD Cherry Picker would be evaluated on cost information from the providers and not based on prices. As a result, Cherry picking from the side of buyer is ensued: Cherries are those items which can be procured with especially lower prices, due to the possible specialisation of the providers. An assessment of whether this specialization is genuine and due to production costs and other factors influencing the price or motivated by tactical pricing due to implicit collusion is not considered at this stage. It is recommended to conduct this strategic examination before using the Cherries identified by the IFAMD Cherry Picker to define lots in a business tendering process.

Part of the Munich Social Science Review, New Series, Volume 8 (2024)

The entire volume can be purchased online at this link.