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You can auction almost anything!
You can auction almost anything. Anything that doesn't have a fixed price associated with it, that is. Why? Because auctions are fundamentally about competition driving prices up or down.

Let's say you're a busy procurement manager working in the brick-and-mortar world, and considering transitioning your corporate buying activities to the Internet. There's no need to be constrained by the popular notion that only certain things are "auctionable." While traditional offline auctions typically conjure up thoughts of fine art, antiques, or rare jewelry, business-to-business online auctions can be conducted for raw materials, furniture, equipment, computers, corporate services, and just about anything else you can think of. In fact, B2B downward auctions are rapidly becoming the most valuable properties on the Internet today.

At A.T. Kearney Procurement Solutions we believe you can auction just about anything, depending on how you define or break down the item in question. To underscore the point that almost anything is auctionable, let's look at some of the common myths surrounding Internet auctions:

MYTH - Only very common, specified, or standardized items can be auctioned:
This myth came into being because no one understood how to measure criteria other than price. Total cost auctions take price AND non-price factors, such as delivery time or customer service, into account, and they allow a customer to weight each factor accordingly. Also, when someone with sourcing expertise takes a creative approach to defining or breaking down the item in question, that item or its components can generally be auctioned.

MYTH - Auctions are only effective when there is a level playing field:
First, a level playing field simply doesn't exist. And, not all suppliers are alike. Face-to-face negotiations have long proven this fact. Procurement managers can now normalize for differences (e.g., customer service, warranty terms, delivery cost, etc.) using Web-based technology. In effect, technologies such as those that measure total cost allow customers to compare apples-to-oranges.

MYTH - Online auctions are successful only if you have Internet-savvy suppliers that participate:

Today, the majority of legitimate suppliers have access to computers. In order to participate in an Internet auction, they merely need to be able to log on to the Internet, log in to a web site, and log their bids. It's that simple. Suppliers don't have to know how to navigate the World Wide Web or use any sophisticated search engines to participate.

MYTH - Auctions create tangible results only if a large number of suppliers participate:
The truth is that you must create a competitive environment, whether it's between four suppliers or 400. Internet auctions put the business "up for bid." Incumbents are wise to take notice. Once existing suppliers believe that the buyer really will change where he takes his business, a competitive environment is created.

MYTH - Only products are auctionable, not services:
Not true - in fact, services are highly auctionable, and are among eBreviate's top auction categories. Telemarketing services, security services, and temporary labor services are all good examples. For example, eBreviate held an auction for telemarketing services that resulted in an 18% cost reduction. The auction involved over 60 suppliers and more than 700 bids.

MYTH - Categories should only be auctioned once per year:
While some categories will achieve better results if auctioned once per annum (or less), many goods and services (such as service repair agreements) can and should be auctioned on a recurring basis throughout the year.

What To Auction
Research has shown that procurement managers tend to truly negotiate only 20 percent of what they buy. Online auctions create a competitive advantage because they make it relatively simple for procurement managers to negotiate on all corporate purchases and create better deals.

So what are good auction candidates? You can auction road salt, PCs, semiconductors, corrugated paper, conference space, cellular phone air time, hydraulic fittings, telemarketing services, office chairs, used equipment, and even utility poles. The potential product categories are endless. The question most often asked by procurement managers new to e-sourcing is: "What do I auction first?" We suggest starting with familiar categories, such as office supplies, then moving into more complex product areas.

But even seemingly "un-auctionable" items may be good auction candidates. Consider an example of huge, idiosyncratic items like dams--while finished dams are monolithic structures, dam construction can be broken down into auctionable chunks. An aggressive auction could be set up in which a slew of smaller suppliers bid for different phases or components of the construction process.

Auctions are also ideal for "hassle-factor" items like gas connections or heat exchange repairs that people must buy on an ongoing basis. This web-enabled technology allows potential buyers to conduct smaller, hassle-free recurring auctions for these items, rather than soliciting new bids and handling repetitive administrative tasks every other month.

The bottom line is that just about anything can be auctioned. However, there are a few exceptions.

What Not To Auction
eBreviate's total cost solution has opened up auctions to most categories of goods and services, but there are still a few instances where auctions may not be appropriate. For example, personal preference cannot be easily incorporated into an auction. For instance, suppose you would like to purchase a large sculpture for the lobby of your company's headquarters. The sculpture should symbolize the mission and spirit of the firm. Since your decision will most likely be based on personal preference and fit with the firm's culture, an auction may not be relevant. Personal opinions just cannot be factored into an auction. Other product categories not well suited to auctions are those involving joint process improvements with suppliers, and those that come from highly strategic suppliers offering truly specialized items like disease-specific medical instrumentation.

Perhaps it can be summarized best with this thought. It is important for companies to expand their concept of what is auctionable, as long as the value of each item is 'elastic' enough to preclude fixed pricing. Once they've done that, the possibilities are almost endless.


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