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Auctions Re-emerging in Tough Economy
Auctions Are Back
Key Reasons for Increase of Reverse and Forward Auctions
Economy – a slight downturn
In the current economic downturn, buyers are re-engaging reverse auctions to establish or confirm “market prices” for goods and services. While there are clear benefits for buyers, there are also obvious opportunities for savvy suppliers. Now, more than ever, it’s not all about price. Buyers are using multiple evaluation criteria to get more thorough assessment of commodities and their suppliers, and to make better decisions.
“Ken Leinweber, strategic sourcing manager, procurement and operations strategy for Sun Microsystems worldwide operations group says, ‘Price is important, but it is only one of the pieces that we look at.’ Also important are availability, technical support, and quality. ‘Suppliers are score-carded on those items,’ Leinweber says.” (Sun’s e-Auction Evolution, By James Carbone -- Purchasing, 9/13/2007)
Suppliers have the opportunity to show off their wares, point out key differentiators, and make certain they do not lose an opportunity based on price alone. Some key factors include: quality, delivery, support terms, and the latest, “Green Sourcing”.
Green Sourcing – buyers’ policies affect suppliers
Buyers are developing Green Sourcing policies and mandating them to suppliers. Standards regarding environmental concerns have an important role in sourcing. Here is an example from GreenBiz.com’s January 1, 2008 article “Green Procurement”. “Chicago-based utility Commonwealth Edison factored life-cycle costs into its purchasing in the early 1990s, the company discovered that one of its largest hazardous-waste streams was the roughly 60,000 gallons of spent solvents it generated each year. ComEd established successful processes to reduce existing solvent inventories and screen solvents being considered for purchase.”
Suppliers Responding in Auctions Benefit Most, According to Survey
According to a survey from Huthwaite International, upon surveying 39 Fortune 500 global companies, participating in auctions is the best way for suppliers to win, especially for the incumbent. Andy Moorehouse reports in “Playing the Game: Effective Strategies for Combating Reverse Auctions” there are effective strategies suppliers can apply. The average reverse auction is valued at $2.2M (Source: Center for Advanced Purchasing Solutions, 2007), and not participating can be costly to a supplier’s business. A key finding from the report is that “93% of successful incumbents won the contract without being the cheapest and the median final rank was third.”
Exceptional Results from Forward Auctions at Enporion
Idaho Power Corporation has consistently run forward auctions with Enporion for years with successful gains in profit. Primarily, IPC uses forward auctions for scrap metal disposal. In the first half of 2008, forward auctions had an average of 100+ bids, and yielded gains to the seller of 58-105% over the starting bid. Similarly, 2007 results garnered 47-63% gains over the starting bid. 2008 YTD forward auctions results have demonstrated an average increase of 14 % over 2007 for the same scrap materials.
Summary
Auctions serve markets for buyers and suppliers. Continued use brings knowledge for building strategic action plans and clearer differentiation for suppliers. For incumbent suppliers, statistics show there is a high likelihood of retaining the business even after an auction. Buyers continue to do business in both types of auctions for market price discovery, but more importantly, auctions are proving to deliver better results for both buyers and suppliers once again.
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