Jaguar shifts into high gear with reverse e-auctions
By Mark Schlack -- Purchasing, 10/18/2001 2:00:00 AM
Making Jaguars has to be a little different than making average cars, and you'd expect this to extend to purchasing as well. What's surprising is how cutting edge this traditional carmaker has become in its use of e-commerce innovations for purchasing.
While many companies are exploring reverse auctions for purchasing, conventional wisdom says to avoid going the e-route to procure parts for which you have no drawings or to concentrate on auctioning nonproduction items—office supplies and the like.
"Those restrictions don't apply," says Will Harman, e-business analyst for Jaguar Cars in Coventry, UK, as long as you apply proven purchasing criteria—quality, supply, reputation—and don't become mesmerized by price alone.
With that in mind, the luxury carmaker has gone from a standing start in December 2000 to a plan for 47 reverse auctions this year. In the beginning, Jaguar stuck to conventional wisdom, using reverse auctions to get best prices on nonproduction items like oil filters for factory machinery. But many of the company's future auctions will be for goods and services that either don't exist yet, or require significant input from suppliers on how they will meet requirements.
Harman cautions that Jaguar's process rarely involves price as a sole criterion. In fact, price is often not even the main criterion. First Jaguar issues a broad requirement to potential suppliers—essentially an RFP. Appropriate business departments then screen the proposals to ensure that they actually meet requirements.
Suppliers who make it past the first round are then invited to participate in the reverse auction. During the auction itself, each supplier offers pricing on its proposed product or service. But still, the auctions are not "best price wins".
"If you select suppliers carefully enough," Harman says, "you should, in principle, be able to select on price. But, in practice, there is always some other consideration." So each bid is evaluated in the context of the overall proposal.
In that case, why bother with a reverse auction? "They simply provide pricing information of a higher quality than we would normally get," maintains Harman. He also finds auctions to be good means for exploring potential new suppliers, although traditional suppliers are still winning bids in many cases.
What's more, he says, the auctions are turning up a few surprises. In one recent auction, for example, two Indian firms were expected to top the field for an information technology service con-tract. But a firm just down the road from Jaguar was most competitive.
Experience to date has led Jaguar to embrace reverse auctions going forward for two distinctly different reasons. The firm will continue to conduct spot buying this way for nonproduction items, but it will particularly emphasize reverse auctions for new production parts—the kind where the drawings aren't yet done.
Suppliers like this because they feel the reverse auctions can level the playing field. While a competitor might have an "in" for a particular part, new business is getting a more objective look. Harman says it's important to demonstrate to suppliers that the auctions do not have predetermined agendas. Jaguar won't buy on price alone, but neither will it buy on prior relationships or other non-economic criteria.
That principle extends to how purchasing works with engineering and other departments within the company. Reverse auctions offer a persuasive snapshot of pricing in the market. If engineering, for example, wants to purchase from a supplier other than the lowest bidder, purchasing managers have both the opportunity and documentation to question the buy to ensure that nonprice criteria are really valid in a particular instance.
Getting it done
How Jaguar does reverse auctions has evolved alongside the company's philosophy. Originally, it used Auto Exchange, an in-house package developed by parent Ford Motor Co. and database supplier Oracle Corp. The in-house package, however, meant in-house data entry and support.
As Jaguar's auction activity increased, it made the switch to an external service provider. In this case, Jaguar has the advantage of being able to use Covisint, the auto industry trading exchange. Harman is pleased to be out of the business of managing auctions themselves, allowing him to concentrate on working with suppliers to get the best bids.
Covisint sets up contacts with suppliers and does tech support for all parties involved. While Harman has found the system to be reliable, it does have all the potential flaws of any Internet-based system. He says most problems have come with suppliers' Internet connections. As a result, Covisint always conducts trial auctions prior to actual events to debug the process.
For Jaguar, having an automotive specialist as service provider is crucial, says Harman. But he admits that companies focusing on nonproduction items may not benefit from that industry expertise.
"Most purchasing agents aren't that knowledgeable about the nonstrategic items their company buys, anyway," he points out.
If a buyer is concentrating on reverse auctions for items like copier paper, using a service provider with expertise in multiple common sectors could help with those sorts of purchases, he points out.
One thing is for sure: at Jaguar, reverse auctions have quickly become "a significant tool" in purchasing, accounting for somewhere between one and 10% of current purchasing plans. Where Jaguar really outraces many others in using the technology, however, is that 50% of the reverse auctions it has planned for the future will be for more sophisticated and newer products and services.
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