Like it or not, online auctions are gaining in the packaging industry and it looks like they're here to stay. However, as bidding wars become more prevalent as buyers search for the perfect supplier (and vice versa), it's important for everybody involved to understand the pros and cons of using online auctions.
For suppliers, a major strike against online auctions is there may be decreases in prices and margins. Companies such as Heinz, Welch's and GlaxoSmithKline believe the benefits of using online auctions to procure packaging materials outweigh the risks. Most suppliers understand that buyers frequently go out for material bids and that bidding through a reverse auction online isn't that much different. It provides an alternative venue for procuring materials.
But there can be a tendency to make more supplier changes than before and by doing so can result in disruptions to your packaging operations. And you may risk damaging important supplier relationships.
Besides possible relationship struggles, the benefits of auctions become more uncertain for both buyers and suppliers when the product in question is also dependent on performance characteristics or if a product carries or needs a service that may be difficult to specify. Those hard to quantify "intangibles" may include:
* Delivery options;
* Warranties;
* Troubleshooting;
* Training options.
Differences among competing suppliers on price related terms may reflect the fact that they are offering different services with their products--services that should, when possible, be disclosed before the auction even begins. The buyer needs to consider those "intangibles" to determine which offer presents the best deal, which may not always be the "cheapest."
But where can a buyer and seller go to make sure the auction process is fair, where both parties walk away feeling they got the best deal?
Buyers should take a "whole company" approach to the auction process. Upper management, engineers, plant managers, marketing and sales teams have to get involved before the auction to set up strategy. And during the bidding period, by using team involvement, buyers get a better handle on what prices are fair and, most important, when to walk away.
Suppliers also have to understand that the high-tech approach to providing goods and services is competitive and prices are going to be driven down regardless. Suppliers that focus on their own efficiencies and cost structures shouldn't perceive online auctions as a threat but as an opportunity.