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Chapter 2 E-commerce fundamentals 87

Note that Covisint (www.covisint.com) is no longer a marketplace, rather it is a neutral
supplier of technology owned by Compuware. The original vision of a neutral B2B market-
place has not transpired. Instead, each manufacturer or company requiring B2B services
uses e-business technology to source materials. So the e-business messaging technology has
proved successful, but the B2B auction marketplace model has not. In 2006, Covisint
technogies had 266,000 users in more than 30,000 companies in 96 countries. Although it
doesn’t now exist as a single marketplace, many manufacturers still use this technology for
procurement. For example, in January 2006, GM announced that it was going to continue
using Covisint for links with its 18,000 worldwide suppliers.
Emiliani (2001) reviews the implications of B2B reverse auctions in detail and Case Study 2.1
shows how auctions can be used in a B2B context.

Case Study 2.1 The impact of B2B reverse auctions FT

This case explains the process of a reverse auction and one where the purchaser can specify precisely what
the types of products suitable for purchase by this standards the desired good or service has to meet. It
method. The benefits of reverse auctions are explored could not, for example, be used to buy in the services of
through many examples from different sectors including lawyers or consultants, or something where the
purchases by government departments. purchaser has to design the service or innovate. But
A dozen people sit in a room staring at the projection about a third of all commodities are suitable for auction,
of a computer screen on the wall. Mr Dempsey says. For the government, that may mean
For 20 minutes or so nothing much happens. ‘It’s a hundreds of millions of pounds’ worth of goods a year.
little like watching paint dry’, says Steve Dempsey, The auctions it has conducted in the private sector
government partner with the consulting firm Accenture. have produced average savings of 17 per cent on the
But suddenly someone miles away, linked via the historic price of previous contracts, Accenture claims.
internet, makes a bid. A pale blue dot registers at the top In the public sector, only the Driver and Vehicle
of the screen. Soon others follow, different colours repre- Licensing Agency, Royal Mail and the Police Information
senting different companies. An e-auction, aimed at Technology Organization have used the reverse auction
cutting the price the public sector pays for anything from approach – buying computer supplies and security water-
paper to computer equipment to air freight, is under way. marked paper, for example. The four auctions, however,
Reverse auctions – where companies bid their way have each produced savings of between 22 per cent and
down to the lowest price at which they are prepared to 25 per cent on the previous contract.
supply – are a commonplace tool in parts of the private The reason, Mr Dempsey argues, is twofold: the field
sector. Operating a little like eBay in reverse, they are a of suppliers can be widened from those who traditionally

way for buyers to negotiate, online, with suppliers to do business with government; and the auction takes
source a range of goods – those whose quality and place in real time, increasing the competition on suppliers
nature can be defined with absolute clarity. to find their lowest price.
Accenture has run more than 1,500 such auctions in The process works by the purchaser spelling out
the private sector in businesses as diverse as the oil and precisely what is needed, advertising the requirement
chemical industries, industrial equipment, marketing and then drawing up an approved list of those who can
and foodstuffs. More than 125 different commodities meet it. Potentially, Mr Dempsey says, that opens up the
have been bought and sold this way, including fork lift market to small and medium-sized companies that
trucks, coffee, foil, fuel, filters, pallets, pipes and struc- might not normally see the government as a customer.
tural steel. Auctions have also included services, such The parameters of the auction are then set, the suppliers
as temporary staff and contracts for earth removal. trained – and battle commences. Usually auctions are
The approach has now come to the public sector and set to last 30 minutes but are extended for 10 minutes
has been greeted with enthusiasm by the Office for each time a bid comes in during the last five minutes. An
Government Commerce, which is charged with lopping average auction runs for about 90 minutes, although
£1bn off the government’s £13bn civil procurement bill some have lasted for several hours.
over three years. ‘You can really feel the tension and excitement’, Mr
‘E-auctions are not suitable for everything’, Mr Dempsey says. A company may, for example, have
Dempsey says. The product has to be a commodity – excess stocks of what the government needs. Or it may