The average company attains the services of a shipping company to move products with hours of telephone calls and patience. The Mars corporation does it a little different though, they instead use the Internet and game theory. Mars has devised an online auction house, Freight Traders, that brings shippers and carriers together. Tenders, or oligations to perform, that used to take months now run in weeks. One shipper claims that freight costs have been reduced by 50%. According to game-theory rules, Mars has changed the game to provide win-win logistical solutions for everyone involved.

Shipping costs in the transportion sector can account from anywhere netween 3% and 6% of the budget for most companies. Logistical planning for these massive corporations is not an easy task and there exists a certainty that shippers and carries will eventually find themselves locked in a price haggling battle. The shippers and carriers are essentially locked in a “zero-sum” game. In these situations, in terms of shipping costs, somebody is usually either going to win or lose completely with a happy medium rarely occurring.

Freight Traders is the first step in interfering with the zero-sum structure in the logistics world. It provides an auction-based broad internet community that excels at providing strategically priced outside options for shippers or carriers who initially would have been subjected to the mercy of one of their few choices. The second step is where game theory becomes involved by assisting Freight Traders in deciding when an auction should cease. 95% of the bids from carriers occurs in the last 2 hours of an auction and Game Theorists suggest that “Sniping,” or withholding a bid to the last possible second, hinders competition. To combat the issue Freight Traders has contrived a “soft ending” mechanism, which extends the deadline of the auction if someone bids in the last hour, ultimately removing the allurement of sniping .

Savings for companies that utilize Freight Traders are estimated to be in the order of 5% - 8%. These savings are generated mainly through efficient bartering and proper truck allocation. The number of freightless trucks in logistics plans, otherwise known as “Empty Running,” has decreased by 20% since the inception of online auction-based trades.

http://www.fastcompany.com/magazine/69/smartcompany.html?page=0%2C0