Chapter 4
Potential BUYER related issues with reverse online auction
- buyer purposely accepts bid at unreasonable low price - buyer puts in phantom bids to lower price - buyer includes unqualified suppliers to increase price competition
Potential Problems using online auctions
- risk of interrupting good supplier relationship - risk of developing a bad rep as an aggressive buyer - cost of running auction vs expected savings - cost of auctions vs sourcing processes like RFQ - up-front preparation and cost vs RFQ - Actual price when unforeseen cost are factored vs bidding price
Potential SUPPLIER related issues with reverse auction
- supplier collusion - suppliers bid unrealistically low prices - Suppliers bird watch to collect market intelligence - Suppliers submit bids after the auction closes to secure business
Deceptive Procurement Practices
- unbalanced bids - Low balling - Bid collusion - kick backs
Problem with Old Procurement:
challenges of designing an efficient and effective process for a diverse spend. Old procurement was not diverse enough and concentrated on only a few suppliers
RFQ (Request for quotation) is requested when...
there is a clear and unambiguous description of need. It is a price comparison tool for commonly used commodities sold in open market.
Reverse auction
declining price auctions for goods or services. Suppliers compete by bidding against each other. Suppilers see the status of their bids in real time. The supplier with the lowest bid or lowest total cost bid is usually awarded the business.
RFQ typical structures
1) Lump Sum 2) Hourly Rates 3) Cost Plus 4) Unit Price with Estimated Quantities 5) Unit Prices without Estimated Quantities
Conditions that should exist in online reverse auction
1. Clearly defined specifications 2. A competitive market with qualified suppliers. More than 3 but less than 6 4. Knowledge of market conditions and expectations 5. Clear rules of conduct for auction length and award 6. buyer should be prepared to switch suppilers if necessary 7. Holding a reverse auction is worth it if it projects savings
Essential steps in Traditional Procurement Process:
1. What does the client need? 2. Client submits the purchase requisition to procurement 3. Procurement then tries to find sources of supply: Either the job goes out to a current supplier or goes out on a competitive bid 4. Negotiations are finalized 5. Procurement finalizes T's and C's 5. Purchase order finalized, contract created 6. receipt and inspection of goods 7. invoice clearing and payment
