Monday 20th May 2019 - Logistics & Supply Chain

The truth about online auctions

A survey by The Chartered Institute of Purchasing and Supply (CIPS) and Bristol Business School, commissioned by Oracle and sponsored by BT, reveals that despite popular concerns, internet-based auctions have contributed to, rather than damaged, the buyer/supplier relationship.

The research showed that suppliers taking part in emarketplaces, have actually improved their levels of flexibility, product and service quality and contract execution.

Contrary to doubts that the service levels and strong relationships built through offline purchasing processes would not be maintained by suppliers offering savings of between 15 and 25 per cent at online auction, no depreciation was seen in either the product’s quality, its delivery, customer support, the supplier’s flexibility nor their ability to fulfil their contractual obligations. In fact, during the course of the 515 auctions surveyed, buyers experienced a 22 per cent increase in the suppliers’ flexibility, a 20 per cent increase in the quality of the product or service, and a 12 per cent increase in the suppliers’ delivery and reliability.

Roy Ayliffe, director of professional practice, CIPS comments, ‘Although auctions typically run at the end of an exhaustive offline selection process wherein suppliers are only invited to partake if they’ve passed a rigorous product and service evaluation, this research critically highlights that suppliers in internet-based auctions continue to deliver right through to the contract and service delivery stage.’

Far from being solely a way to reduce product and service acquisition costs, 86 per cent of buyers cited developing supplier relations as a key reason for using e-auctions.

Despite the success of the majority of the surveyed auctions, the findings indicate that the most common reason for the failure of auctions is the lack of supplier participation and of a competitive supply base.

The fact that buyers are therefore most attracted by the breadth of the suppliers involved thereby invalidates the idea that driving down costs alone dictates buyers’ auction participation.

Andrew Douglas, senior procurement specialist, Oracle, says, ‘Given that the results clearly demonstrate quality and service improvements other than lower prices, we conclude that a combination of technology and best practice purchasing techniques clearly benefits the buyer/supplier relationship. Encouragement for those purchasing practitioners who have yet to use an online auction.’

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