Tuesday, December 02, 2008
ELP Articles (Edition 2)
Posted: Monday, August 01, 2005, 11:10PMAuthor: Chirag Shah - Trading Partners
Published in: Edition 2 (June 2005)
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KNOWLEDGE MANAGEMENT TAGS
"Technology"
What's the future of e-auctions?
The advent of the internet has revolutionised the purchasing habits of organisations, with online auctions, or e-auctions, growing in popularity.
It's only about ten years since the idea of holding auctions over the internet was first dreamed up, but we've come a long way since then. And there's plenty more to come: the story of how internet technology is transforming the way businesses buy goods and services has only just begun. It could get a whole lot more interesting in the next few years.
At first it was pretty simple. In the early days of the e-revolution, someone realised that the cumbersome and time-consuming business of putting purchases out to tender could be short-circuited using the then nascent internet. What's more, the sheer speed of this new information exchange meant true market prices could be reached more efficiently, translating in very large amounts of money that could be saved.
The reality has turned out to be more complicated. Some suppliers - and some procurement people - resisted the new approach. But before long, people realised online autions were a valuable tool, enabling the procurement process to be compressed into weeks rather than months. Many extremely successful e-auctions across a range of industries have proved they are here to stay.
Around six months ago, an interesting development took place when the idea of holding a simple auction for a package of goods or services suddenly got more sophisticated. 'Optimisation' was the buzz word. It meant buyers, and suppliers, could input various scenarios into the auction environment in such a way that bids could be tailored towards specific market conditions.
That means buyers will be able to make decisions based on customised combinations of suppliers producing and delivering goods or services under varied time scales, with differing levels of quality or conforming to different business variables, such as shipping costs, import dues or stock holding fees.
But that is only the beginning of what promises to be a fascinating story in the years to come. There are many ways to hold an auction. In the online world, the norm is the 'English reverse auction', in which suppliers compete to reduce the payment they are willing to accept from the buyer until no-one is prepared to go any lower.
There are other ways of doing it, each with its own strengths and weaknesses, depending on the circumstances. There is the Dutch auction, for example, in which the price is lowered until a bid is made that is then accepted: the advantage is that the process is very fast. Similarly, in a Dutch reverse auction, the price starts low and rises until someone makes a bid.
In a Japanese auction, potential buyers must all bid at a gradually rising price. Those who can't, have to drop out and the winner is the last remaining bidder. Again, in the reverse version, the price gradually rises with all would-be buyers required to bid or drop out. The big advantage here is that, unlike in an English reverse auction, they buyer can be much more certain that the true market price will be achieved.
There are several other options. What they show is that the internet has opened up myriad possibilities for exploring sophisticated ways of buying goods and services. The science of procurement is taking a huge leap forward as purchasing professionals are freed from the donkey work of tendering, giving them more time to consider what they are doing, and what other ways there might be of doing it.
Technology, as has often been said, is just a tool. But what it means is that the business of buying and selling is opening up to new thinking. The internet, and especially the advent of broadband, is creating new ways of interacting and doing deals. That means more efficient business - and that is in everyone's interests.
Chirag Shah is CEO of Trading Partners
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