Combinatorial auctions for green supplier selection and bundled order allocation

Outsourcing has become a key strategy for firms seeking efficiency and competitiveness, leading to a growing emphasis on effective supplier selection and order allocation (SSOA). While combinatorial auctions have been recognized as a powerful tool for procurement, their integration into multi-sourcing SSOA decisions remains underexplored. This paper develops a novel Winner Determination Problem model that generalizes prior work by allowing suppliers to submit multiple, potentially even overlapping, bundles. We also propose four original heuristic approaches inspired by Kernel Search, tailored to address both the cost and environmental sustainability dimensions of procurement. Extensive numerical experiments demonstrate the strong performance of the proposed methods, with the weighted frequency-based rarity and value density heuristic achieving the best trade-off between solution quality and computational time. Managerial insights reveal that auction-based SSOA mechanisms can achieve significant cost savings compared to traditional models due to economies of scope, and highlight critical trade-offs between supplier diversification, cost efficiency, and risk management. This study advances the field by offering both methodological and practical contributions, with future research directions suggested in stochastic and dynamic auction settings.