There are always pressures to reduce costs and speed up the procurement process, and providers of reverse auction platforms argue that their services can do just that. Indeed, the reverse auction is an approach that can prove useful for products with clearly defined specifications and simple service requirements. Academic research and real-world experience alike, however, have shown that reverse auctions can deliver sub-optimal results for pallet providers and pallet customers.
In the earlier installments of this pallet procurement series, I talked about the variables involved in achieving a successful pallet bid, and the steps required. Those complexities can prove problematic for a reverse auction process. Let’s look at a couple of scenarios involving reverse auctions. One of them makes sense. The other leads to a suboptimal outcome versus using a sealed bid.
At PalletOne, we participate in reverse auctions that have been useful for some customers. Typically, the companies will ask only a limited number of qualified bidders, including current suppliers, to participate. As a pallet supplier participating in the reverse auction process, you see only how your bid ranks in terms of your position versus the other unidentified bidders. From the customer’s perspective, if they have done their homework, they understand the capabilities of the companies bidding. They take this into account when they make the award. In some auctions, we’ve ended up being the third-lowest bid but still were given the contract. Ultimately, customers want to ensure they are getting a competitive price, but they also want to be confident they have a supplier who can consistently perform.
Reverse auctions are far less successful where the bid is more complex, involving multiple pallet specifications and numerous customer locations. The winning bidders on these types of events are often pallet brokers. They may throw out numbers aimed at winning the business, and then have to work backwards to figure out who they find to provide the pallets for the price they just agreed to take. The limited availability of information associated with reverse auctions can make accurate bidding a challenge. Price pressures can result in the delivery of pallets that don’t meet the required specification and potential quality issues for the customer.
Regarding the question posed in the title of this article, my experience is that we have saved companies the most money and had the most success with the sealed bid process. And the best success is achieved by those businesses that will allow us to do on-site visits – at our own expense. I can’t stress that enough. I respect that a buyer might have a hard and fast timeline and be under pressure to conclude the process, but the success of the bid ultimately comes from what you put into it. If you are willing to slow down your procurement process a little bit to enable pallet providers to access all of the information needed for an accurate bid, you will benefit from a superior outcome.
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