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4.5 Reverse Auctions at Buy-Side E-Marketplaces (E-Tendering) 115

For software issues, see eprocurementsoftware.org. For
volume discounts, and consolidation of purchases an example of how procurement is used in government, see
from fewer suppliers. NC E-Procurement (eprocurement.nc.gov). Governments
• Improving information flow and its control (e.g., frequently use reverse auctions for procurement, which we
price comparisons). present next.
• Reducing the frequency and cost of maverick buying. Procurement is an extremely important success factor for
• Improving the payment process, and sellers’ sav- many companies. Therefore, it is important to learn about the
ings due to expedited payment cycle. future of e-procurement as well. For ideas about procure-
• Establishing more efficient and collaborative part- ment in 2020, see Oka et al. (2011). To learn about Shoplet’s
ner relations due to information sharing. platform for e-procurement, see Regal (2014) and shoplet.
• Improving the manufacturing process for the suppliers. com/about.
• Ensuring delivery on time and fewer stock-outs.
• Reducing the skill requirements and training needs
of purchasing agents. SECTION 4.4 REVIEW QUESTIONS
• Reducing the number of suppliers.
• Streamlining and expediting the purchasing process.
• Controlling inventories more effectively at the buy- 1. Define the procurement process.
2. Describe the inefficiencies of traditional procurement.
ers’ end.
• Streamlining invoice reconciliation and dispute 3. List the major procurement methods.
4. Define e-procurement and list its goals.
resolution.
• Reducing the administrative processing cost per 5. List the major e-procurement methods and list some
activities in each.
order by as much as 90% by reducing purchasing
overheads and intermediary fees. 6. List the major benefits of e-procurement.
• Finding new suppliers that can provide goods and
services faster and/or less expensively (e.g., by
going global and use online price comparisons). 4.5 REVERSE AUCTIONS AT BUY-SIDE
• Integrating budgetary controls into the procurement E-MARKETPLACES (E-TENDERING)
process (e.g., ariba.com).
• Minimizing human errors in the buying or shipping A major method of e-procurement is using reverse auc-
processes. tions. A reverse auction is a process in which many sell-
ers (suppliers) compete to fulfill orders requested by one
buyer. Recall from our earlier discussion that a reverse
For more on the benefits of e-procurement and on imple-
mentation issues, see the video titled “eProcurement Case auction is a tendering system where suppliers are invited
Study: Oldcastle Materials” (3:16 min) at youtube.com/ to bid on the fulfillment of an order, and the lowest bid
watch?v=PPVC_CaG1S4. wins. In B2B usage of a reverse auction, a buyer may open
an e-market on its own server (or use an independent auc-
tioneer such as eBay) and invite potential suppliers to bid
The Limitations and Challenges of E-Procurement
on the items. This “invitation” to such reverse auctions is a
form or document called a request for quote (RFQ).
Unfortunately, e-procurement practices have some limita-
Traditional tendering usually implies one-time sealed bid-
tions and risks such as:
ding, whereas an e-reverse auction opens the process to
competing sequential bidding. For a comprehensive over-
• The total cost (TCO) may be too high. view of reverse auctions, see reverseauctions.com, epiqtech.
• It may be subject to hacker attacks. com/reverse_auctions- Overview.htm, and reverseauctions.
• It may be difficult to get suppliers to cooperate gsa.gov.
electronically. Governments and large corporations frequently mandate
• The system may be too complex (e.g., when it uses reverse auctions, which may provide considerable savings
a traditional EDI; see Online Tutorial T2). because more suppliers are participating in a more competi-
• It may be difficult to have internal and external inte- tive process. The electronic process is faster and administra-
gration (sometimes it involves different standards). tively much less expensive. It also can benefit suppliers in
• The technology may change frequently. finding RFQs. Reverse auctions are very important B2B
mechanisms in e-procurement.