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Lean Manufacturing Articles

Reverse Auction or the Electronic Market


The electronic market is the essence of the modern con­cept of the B2B electronic commerce. In a controlled environment, which may or may not be open to all, buy­ers post their needs, as generated by the PRs. Suppliers can visit the site and place their bids to provide the parts needed. When a match occurs, a decision can be made and transaction can be generated to place a PO. If there is more than one bid, the buyer has the option to create a competition. It can be either in a "sealed envelopes" format, where the other bidders do not see the lowesprice, or as a reverse auction, where they do, and are given the opportunity to beat it with a lower price.

Another variant is the time allotted for the suppliers to respond. Some auctioneers believe in adding a time pressure to the suppliers, open a short window of op­portunity to bid, and close the bidding process when new bids rate dwindles. Others believe in providing more time for the bidders to rethink their positions based on the feedback of where they are in the competition. The bidding exchange process should allow for questions, waivers, and comments. The decision process and rules of the game (especially regarding waivers) has to be clear and communicated to all bidders before they are asked to place their bids. This method resolves the issue of availability handicaps of the auto-release. When suppli­ers have an automated ATP capability, the process can be automated from both sides, suppliers and buyers, and a real-time transaction can happen. This method also covers the cases of non-part-number-based agreements, where the agreement is based on certain price breaks and discount of a reference book price. The main diffi­culty here is how to attract the right suppliers to par­ticipate. There is also an issue of "reverse catalog" browsing here: How can suppliers find their own parts easily out of a potentially large volume of bid requests irrelevant to them? Proper filtering, masking, or view­ing of the data might be a tough issue!

Outsourced Procurement

As explained before, the automated methods, as power­ful as they are, cannot cover all the needs of the buyer. There always some odd parts, bought infrequently, and therefore not covered by agreements or catalogs, or their suppliers would not frequent the electronic market. Why outsource? The main reason is the same as any other case for outsourcing. There are companies whose core competency and main line of business is purchasing. These companies usually have better software to do the job than their customers' legacy systems. This enables them to perform the procurement process faster and at a lower cost. They are better in finding sources for hard-to-find parts. They allow the overloaded buyers to con­centrate on the 20 percent POs with the 80 percent value. They solve the problems of uneven workload, especially for the "made to contract" business, which has spikes of orders to place when a new contract is awarded. There are variants here too. The outsourcing can cover the sourcing process only (yielding quotes), quote and or­der, follow-up, and up to delivery of the parts and pay­ment of the suppliers.



With all these no-system and in-system options, we have basically covered most of the spectrum of company low-cost items needed by the enterprise. The user will decide which method is applicable and suits his business sce­nario the best. For the in-system process, the common logic is to give auto release the first try, forward what is left to electronic bidding, and then route the leftovers to the outsourcing service provider. So what else can we do to free buyers' time and still get the work done? Follow-up is a good candidate.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 14

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