Online auctions save millions for Quaker Oats and SmithKline Beecham
By Mark Brunelli -- Purchasing, 3/23/2000
Reverse auctions--where suppliers bid prices down to win contracts--are hot in B2B e-commerce. And Web sites where buying organizations can hold such auctions are pringing up rapidly.Since 1997, Quaker Oats has saved $8.5 million by purchasing via reverse online auction, according to Carl Curry, vice president of integrated purchasing and logistics. And SmithKline Beecham, a pharmaceutical and consumer healthcare company, recently announced $3 million in savings through online auctions.
Both companies chose to conduct auctions at FreeMarkets Inc. (freemarkets.com). Other Web sites where buyers can hold reverse auctions include SupplierMarket.com, BidtheWorld.com, rfpMarket.com, and eBreviate.com.
Curry says Quaker Oats first heard about online reverse auctions about three years ago when a senior member of his department encountered a FreeMarkets representative at the Center for Advanced Purchasing Studies in Arizona.
"At that point FreeMarkets was talking about the concept in terms of what they intended to deliver and how their system was going to work," says Curry. "[Our person] came back excited, saying 'Boy if this becomes functional we ought to be an early player.'"
From there, Curry and the rest of his department started looking for commodity contracts that were coming up for renewal which the company could put out for bid on the FreeMarkets Web site. Glycerin was the first product they put out to bid. Since then the company has held regular auctions on the site, reaping large savings. Curry says the $8.5 million represents the amount of savings the company achieved versus prices it had in place before going to FreeMarkets.
The process for conducting a reverse auction on the FreeMarkets site begins with choosing which contracts will be put out for bid, Curry says. After that, a supplier evaluation process begins where the buying company looks at its list of suppliers to decide which ones will be offered a chance to bid for the contract. At that point, FreeMarkets also searches its own list for qualified suppliers.
"FreeMarkets typically brings back their list, which may differ somewhat from our own. They may have experience with suppliers with whom we haven't worked or they may be more global," says Curry. "We canvas the list of suppliers to determine if they can meet our initial needs from a quality and response perspective."
The next step, Curry says, is to write the RFQ and send it out via e-mail to all qualified suppliers along with information as to when the bidding will take place.
After that, the buying company uses its Web browser to click into the Web site and watch the bidding. "The auctions generally take place in about 20 to 30 minutes," Curry says. "Then we determine who won the bid and award the contract from there."
Curry says the relationship between Quaker Oats and FreeMarkets is one that adds value. "The quality of the people and the resources that FreeMarkets has put forth have been helpful. We think their process works very well."
SmithKline Beecham began using FreeMarkets in 1999 and since then has bid out more than $38.2 million worth of goods and services. Company management says that number represents a 10% decrease as compared to prices they used to pay.
"Electronic commerce is the way of the future and not to embrace it is just putting off the inevitable," says Willie Deese, SmithKline Beecham's vice president of worldwide purchasing. "We are using [Freemarkets] to set market prices for the products and services we purchase and we are extremely pleased with the results."
FreeMarkets says it has facilitated more than $575 million worth of bids for indirect goods and services, saving an average of 13% for its Global 1000 clients. The company says that, to date, twenty-one clients have used the electronic marketplace to source indirect material in more than 46 different product and service categories. Some of those categories include tax preparation services, electricity, corrugated packaging, pallets, rental car rates, hotel room rates, telecommunications wiring and installation services, promotional items and MRO items.
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
Now Playing:
