Implementing Reverse E-Auctions: A Learning Process

The Cutting Edge in Auctions: Dutch Auctions

MIS 434

Reverse Auctions

• A reverse auction (also called procurement auction, e-auction, sourcing event, e-sourcing or eRA) is a tool used in industrial business-to-business procurement.

• The role of the buyer and seller are reversed, with the primary objective to drive purchase prices downward.– In an ordinary auction (or also known as forward

auction), buyers compete to obtain a good or service. – In a reverse auction, sellers compete to obtain

business.Source: Wikipedia

Focus of the Reverse Auctions Paper?

• To illustrate how firms using e-reverse auctions have succeeded

• The main focus is to illustrate how organizational learning is important in managing the auction process and the relationships this creates with suppliers

Build e-Auction Competencies

• All five case study firms initially used third-party service providers to explore and gain experience with the e-auction process.

• Once e-auctions became a permanent fixture, supply managers had to decide between continuing to outsource e-auctions and developing their own internal e-auction competencies.– All firms eventually developed competencies

Build e-auction competencies

• Two factors influenced the decision to build competencies: – Third-party e-auction administration costs – E-auction and supply market knowledge.

e-Auction Competencies: Summing Up

• All case study firms started with a third-party service provider to acquire e-auction knowledge and experience.

• As their internal competencies developed, the firms reduced their reliance on full-service providers and moved e-auction processes in-house.– The direction in which they move depends on

their knowledge and the auction administration costs

Organize for knowledge management

• Organization-wide learning of e-auctions occurred when the pertinent experience and knowledge of supply managers is captured, accumulated, and shared within the firm.

• The Point? Firms need to organize processes and personnel around the e-auction function

Create a Holistic Sourcing Process

• The e-auction must be considered as a holistic process that extends from the first step of selecting the items or services, through all other steps required to implement and realize the savings

• The Point? As with other supply chain sourcing activities, the full value chain must be considered

Focus on Total Cost of Ownership (TCO)

• The TCO philosophy emphasizes that sourcing decisions should consider all costs associated with acquisition, possession, use, and disposition– The lowest price doesn’t always win– TCO is influenced by switching costs,

infrastructure issues, and trust

Experiment with e-auction Designs

• Supply managers explored new auction designs – Multi-lot e-auctions– Changing the type of real-time information

visible to bidders (price feedback versus rank feedback)

– Using different pricing rules– Enabling multi-attribute auctions that focus on

more than just price.

The Future of e-Auctions

• Most Supply Chain Managers thought e-auctions were helpful– Greatest savings occurred earlier– Moved from standard items to more specialized– Price declines would occur if…

• New suppliers, in particular, from foreign countries participate in the bidding

• Suppliers' costs are reduced, due to raw material price reductions, new process changes, and/or product innovations

• Industry-wide excess production capacity or inventory exists temporarily, and/or

• Suppliers focus on revenue generation rather than profit maximization, such that they are willing to lower prices below their break-even levels.

Benefits of e-Auctions

• Save time

• Reduce the number of suppliers used

• Standardize the sourcing process

• Help organizations standardize contract terms and conditions

• Buyers can be assured the obtained price is competitive

The Cutting Edge in Auctions: Dutch Auctions

• Dutch auction: the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined reserve price (the seller's minimum acceptable price) is reached

Source: Wikipedia

The Cutting Edge in Auctions: Dutch Auctions

• Dutch Auctions are a fast way to dispose of materials– Bidding is easier– There is typically only one bid– Bidders typically bid earlier

• Dutch Auctions tend to generate higher prices