In a paper that I published in 2005, I assert that in its present state of affair an electronic marketplace would become nothing but a virtual place where the competing firms would be indulged in price wars to maintain their presence. A prolonged spur of activities in this direction would lead to a stalemate where the winners are losers. In the long-run it is important that the decisions associated with electronic auctions must be based on more than bargain-basement price tags. The business intangibles focused on developing a strong buyer-supplier relationship, will determine the quality of the purchase contract.
To survive, many exchanges are already starting to change business strategies, shifting from public auction-type exchanges to private exchanges run exclusively for a specific shipper and its core carriers. Others are transforming themselves into application service providers (ASPs) that rent software solutions online. Many are looking to transform themselves from public exchanges that are open to all comers into private exchanges that provide a platform for a specific company and its trading partners to collaborate on the Internet. A lot of them are migrating to collaborative logistics networks. The focus is moving away from a spot exchange to providing the infrastructure for companies to collaborate with their existing partners.
Source: Nair A. 2005. “Emerging Internet-Enabled Mechanisms in Supply Chain,” Supply Chain Management: An International Journal, Vol. 10, No. 3/4: pp. 162-168.
2 responses to “Internet-enabled Auction Mechanisms in Supply Chains”
This is a very interesting post. Some years ago few of my friends had started up on a venture to do a similar auction enabled exchange for basic steel products – long and flat products, but it was too early for the time and there wasn’t much buy-in. Eventually many exchanges have come up since then but many of them typically revolve around auctions based only on price or price&delivery of readily available stock.
Steel or for that matter most industrial goods and consumables are usually certified by third party inspection agencies such as BVQI, SGS, DNV, UL etc., prior to shipments, but there are no such features in most of these auction enabled sites. For such sites to go beyond price based auctions they should also incorporate collaboration capabilities for transaction of various documents including inspection reports, test certificates, packing lists (formats beyond ERP/SCM defined ones), transportation documents and bank documents for payments, bill negotiations etc, and finally a window into the shipping companies for a view into route planning and logistics, along with a records management system for proper tracking of material flow to identify supply sources, if at all required for product recalls or defects. Think of this as an insurance case-management capability tied into an auction site.
For industrial products, relationships are built at many levels that transcend typical buyer-supplier relations to include third party inspection agencies and multi-modal shipping companies as well, and such sites should facilitate such collaborative interaction capabilities. Unfortunately, I am not aware of sites that actually provide all these capabilities, hence it ultimately narrows down to a price based auctions where suppliers compete only on price.
Hi Sethu: Thanks for your insightful comments. Indeed, B2B auctions should be more than about purchase price. Increasingly, there is a focus on TOTAL COST, which incidentally is dependent on factors beyond the price of transaction. Based on my discussions with a few managers, multi-attribute auctions are becoming a norm. Firms are engaging in a two step procedure. In the first step the auction participants are evaluated on order qualifiers or on capabilities other than price. For example, participants are expected to provide their capabilities in quality, delivery, flexibility etc. Subsequently, in the second step the actual auction is executed. While the auction may be price based, the information obtained in the first step (e.g. quality/delivery capability) is fed into the auction to get a weighted comparator score for each auction participant. The winner of the auction is the one with the highest comparator score. The hurdle in executing such a mechanism is to come up with the weights that best reflect the core requirements. I think it is difficult but doable. –Anand