Communications of the IIMA


Sales management is responsible for securing business by submitting bids for contracts to supply their products to wholesalers and retailers. In this case study, the bidding information was organized to improve the process for evaluating each contract using a model. The model is used in daily operations to price products in a frequently repeated, sequential auction environment for contracts awarded to the lowest price. This methodology quantifies three factors in developing a probability distribution describing the potential of winning the contract. These factors include the competitor's reaction to the last winning bid, the second lowest bid and their own bid. Other factors that influence the pricing decision, such as quantity, geography, and number of competitors, are included in the selecting of contracts to build the model. For over a decade, management utilized this technique to maintain over $300 million in sales each year.