Ten commandmants of reverse auctions
Doug Smock -- Purchasing, 2/6/2003 7:00:00 AM
This issue's cover story (starting on page 25) focuses on buying in Detroit, never a very pleasant topic. Too often, Detroit's top purchasing executives have focused on price, and not enough on cost reduction and supplier collaboration. Now there is particular concern about use of reverse auctions because of the ugly cost and profit climate in the Motor City. Some buyers today are closing the door on long-term supplier relations because of poor (some would even say unethical) use of reverse auctions. This is a good time to reiterate guidelines for the appropriate use of reverse auctions.
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Mean it if you do it. Significant supplier resources are devoted to preparation for reverse auctions. Intend to award business at the end of the process.
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No reconnaissance by auction. Don't use the auction process as an attempt to gather market intelligence. It's an insult to your most important partners.
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No outside quotes. All deals must be done according to the stated rules and conditions.
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Keep out the shills. Only invite participants if you absolutely are willing to do business with them.
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State all terms and conditions up front.
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Make sure that all participants receive the same information and clarifications in a timely manner.
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Award business quickly and inform participants of auction results. The actual award, of course, is confidential, but let participants know the process is completed.
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Don't change the structure of lots after the bidding is completed. You made the rules, and you have to live by them. Bids are made based on the lots as structured. Changing the rules is a breach of trust.
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Set realistic price expectations. If those aren't achieved, let the bidders know in a timely manner.
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Hold suppliers accountable for what they said they would do.
More detail can be found in our E-Auction Playbook Part II, which can be purchased at www.purchasing.com in the bookstore.
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