|You can auction almost anything!
|You can auction almost anything. Anything that doesn't have a fixed
price associated with it, that is. Why? Because auctions are fundamentally
about competition driving prices up or down.
Let's say you're a busy procurement manager working in the brick-and-mortar
world, and considering transitioning your corporate buying activities
to the Internet. There's no need to be constrained by the popular
notion that only certain things are "auctionable." While
traditional offline auctions typically conjure up thoughts of fine
art, antiques, or rare jewelry, business-to-business online auctions
can be conducted for raw materials, furniture, equipment, computers,
corporate services, and just about anything else you can think of.
In fact, B2B downward auctions are rapidly becoming the most valuable
properties on the Internet today.
At A.T. Kearney Procurement Solutions we believe you can auction
just about anything, depending on how you define or break down the
item in question. To underscore the point that almost anything is
auctionable, let's look at some of the common myths surrounding
MYTH - Only very common, specified, or standardized items can
This myth came into being because no one understood how to measure
criteria other than price. Total cost auctions take price AND non-price
factors, such as delivery time or customer service, into account,
and they allow a customer to weight each factor accordingly. Also,
when someone with sourcing expertise takes a creative approach to
defining or breaking down the item in question, that item or its
components can generally be auctioned.
MYTH - Auctions are only effective when there is a level playing
First, a level playing field simply doesn't exist. And, not all
suppliers are alike. Face-to-face negotiations have long proven
this fact. Procurement managers can now normalize for differences
(e.g., customer service, warranty terms, delivery cost, etc.) using
Web-based technology. In effect, technologies such as those that
measure total cost allow customers to compare apples-to-oranges.
MYTH - Online auctions are successful only if you have Internet-savvy
suppliers that participate:
Today, the majority of legitimate suppliers have access to computers.
In order to participate in an Internet auction, they merely need
to be able to log on to the Internet, log in to a web site, and
log their bids. It's that simple. Suppliers don't have to know how
to navigate the World Wide Web or use any sophisticated search engines
MYTH - Auctions create tangible results only if a large number
of suppliers participate:
The truth is that you must create a competitive environment, whether
it's between four suppliers or 400. Internet auctions put the business
"up for bid." Incumbents are wise to take notice. Once
existing suppliers believe that the buyer really will change where
he takes his business, a competitive environment is created.
MYTH - Only products are auctionable, not services:
Not true - in fact, services are highly auctionable, and are among
eBreviate's top auction categories. Telemarketing services, security
services, and temporary labor services are all good examples. For
example, eBreviate held an auction for telemarketing services that
resulted in an 18% cost reduction. The auction involved over 60
suppliers and more than 700 bids.
MYTH - Categories should only be auctioned once per year:
While some categories will achieve better results if auctioned once
per annum (or less), many goods and services (such as service repair
agreements) can and should be auctioned on a recurring basis throughout
What To Auction
Research has shown that procurement managers tend to truly negotiate
only 20 percent of what they buy. Online auctions create a competitive
advantage because they make it relatively simple for procurement
managers to negotiate on all corporate purchases and create better
So what are good auction candidates? You can auction road salt,
PCs, semiconductors, corrugated paper, conference space, cellular
phone air time, hydraulic fittings, telemarketing services, office
chairs, used equipment, and even utility poles. The potential product
categories are endless. The question most often asked by procurement
managers new to e-sourcing is: "What do I auction first?"
We suggest starting with familiar categories, such as office supplies,
then moving into more complex product areas.
But even seemingly "un-auctionable" items may be good
auction candidates. Consider an example of huge, idiosyncratic items
like dams--while finished dams are monolithic structures, dam construction
can be broken down into auctionable chunks. An aggressive auction
could be set up in which a slew of smaller suppliers bid for different
phases or components of the construction process.
Auctions are also ideal for "hassle-factor" items like
gas connections or heat exchange repairs that people must buy on
an ongoing basis. This web-enabled technology allows potential buyers
to conduct smaller, hassle-free recurring auctions for these items,
rather than soliciting new bids and handling repetitive administrative
tasks every other month.
The bottom line is that just about anything can be auctioned. However,
there are a few exceptions.
What Not To Auction
eBreviate's total cost solution has opened up auctions to most categories
of goods and services, but there are still a few instances where
auctions may not be appropriate. For example, personal preference
cannot be easily incorporated into an auction. For instance, suppose
you would like to purchase a large sculpture for the lobby of your
company's headquarters. The sculpture should symbolize the mission
and spirit of the firm. Since your decision will most likely be
based on personal preference and fit with the firm's culture, an
auction may not be relevant. Personal opinions just cannot be factored
into an auction. Other product categories not well suited to auctions
are those involving joint process improvements with suppliers, and
those that come from highly strategic suppliers offering truly specialized
items like disease-specific medical instrumentation.
Perhaps it can be summarized best with this thought. It is important
for companies to expand their concept of what is auctionable, as
long as the value of each item is 'elastic' enough to preclude fixed
pricing. Once they've done that, the possibilities are almost endless.
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