Reverse Auctioneering

Currently, I am doing temp work. Temp work provides some odd insights, and creates more than its fair share of questions.

My current place of work has decided the next big cost savings will be in reverse auctions. For those unfamiliar with the concept, imagine an auction, now a starting price of say $50. As a participant, you are unable to bid more than the starting price, and the winner is theoretically the bidder who has offered the lowest price. That is all well and good, and this is something that is normally done with commodities, rather than custom built parts.


Now then, here is how the same process is being worked at my current place of work. After identifying the products that can be reverse auctioned, basically everything, the company then asks its vendors for quotes. After receiving the quotes, which I assume to be competitive, they choose the lowest as the starting point of their auction. Then, the vendors who have quoted are notified that an auction is going to be held, and they need to register for it. After everything is set up, then on the day of the auction, a buyer from my place of work logs into the auction site and determines that the vendors are present, and if they aren't, calls are made to get everyone on board. Of course, during the auction, calls are made to the participants verifying there aren't any technical problems, especially if bidding seems slow. When the auction is over, my place of work now has a new, lower price than the one on its lowest bid. Though there is one more caveat, the lowest bid isn't guaranteed the contract.

What happened recently is that the auction process moved forward on some custom parts which had been bid out prior to the auction. During the auction, the company whose bid was the most competitive, Bob's Pins and Needles, also had the misfortune of being the company whose bid was used as a base for the reverse auction price. Bob's opened bidding at the base auction price, and during the course of the thirty minute auction, there was only one other active participant, each company bid once. Now, as it turns out Bob's Pins and Needles was the prefered vendor and will probably receive the contract, even though its bid wasn't the lowest. The difference is that now management at my place of work doesn't believe Bob's wants to play ball, and Bob's Pins and Needles has the distinct feeling that someone believes Bob's isn't providing competitive pricing.

This could only be called successful if damaging relationships is the goal of these auctions. My beliefs fall into the more old-fashioned line of thought that companies which work together are more likely to succeed than companies which are antagonistic partners, and what I see is the creation of distrust among partners.