Developing Trust-Based Relationships in Online Procurement Auctions

This chapter discusses the challenges involved with developing trust and commitment in online procurement auctions. Online procurement auctions, otherwise known as e-auctions, are becoming increasingly more popular for conducting business-to-business transactions. However, many studies suggest that the success rate for e-auctions is down considerably. This may be due, in large part, to the absence of trust between the buyer/seller in this virtual arena. This chapter summarizes the current literature on trust and collaboration in the e-auction supply chain and discusses the processes in place that may contribute to the lack of trust between parties. Viewpoints of the buyer and seller are presented. Common issues are identified and the challenges associated with creating trust and fairness in the e-auction environment is revealed. Proactive strategies must be in place in order for stakeholders to maintain trust in this environment and to gain benefits from this virtual supply chain process. Future areas of study in this area are critical to its success.

Do Reverse Auctions Violate Professional Standards and Codes of Conduct?

During the e-business boom of the 1990’s, reverse auctions became a new business tool for purchasing/procurement that promised increased reductions in supplier costs. The benefits of reverse auctions have been substantiated but not without debate. One of the debates is the ethical considerations inherent with these new business processes. Our study investigates whether reverse auctions violate corporate or professional standards of conduct. This chapter examines some of the professional standards/codes of ethics available including the Institute of Supply Chain Management (ISM) and a selected number of organizations including Dell and GE. Further, the chapter presents a framework that can help an organization determine if reverse auctions, and the way they run them, are ethical.

Point Counterpoint

In this chapter, the online reverse auction is introduced through a series of points and counterpoints on the use of the tool. Tom Gattiker, Boise State, and ML (Bob) Emiliani, Central Connecticut State, identify and debate eleven points in the use of online reverse auctions

A Reverse Auction Case Study

The reverse auction tool has evolved to take advantage of Internet technology and has been identified by many large organisations as a tool to achieve substantial procurement savings. As companies adopt this technology it is important for them to understand the implications of this type of procurement. This chapter re-visits a reverse auction event and discusses the impacts the reverse auction format had upon all participants involved in the auction. In late 2001 a small Australian supplier of transport and logistics services was asked to participate in a reverse auction for services they had provided for 5 years to a multi-national organisation. They were not successful in retaining their contract position and this chapter looks at the reverse auction and its business impacts 2 years after the initial auction. The case study is viewed through the eyes of the winning supplier, losing supplier, auction vendor, and buyer. The main outcomes show that the reverse auction struggles to adapt to fluid business conditions and is limited if it is used as only a price fixing mechanism. It did not engender co-operative supply chains or win-win situations between the auction players.

Reverse Auction Impact on Mining Company

The case describes the initial implementation and evaluation of an e-procurement system, using reverse auctions, for a large manufacturer of brown coal in the Slovak Republic. One of the biggest problems when making decisions on e-business investments is unclear return on investment (ROI) and uncertainty about what method should be used for measuring the results. An outline of the reverse auction process is provided, followed by the presentation of a number of metrics that evaluate the current performance of the system versus intended future performance matrix. Specifically, it focuses on the ROI and other performance indicators that have been adjusted according to e-commerce specifics, particularly to procurement with dynamic pricing transactions. The case results proved that the investment into the e-commerce solution is highly effective in reducing input costs.

Novel Business-Oriented Auctions

With the advent of the Internet, traditional auction forms have evolved to fit into a plethora business niches, either integrating into traditional approaches or simply creating new opportunities. This chapter examines two novel uses for auctions in a business context, namely sponsored search auctions and prediction markets. Understanding the potential auction benefits and limitations can hopefully provide practitioners with a more informed and successful approach when employing these auction-based tools in their business.

Bundling for Online Reverse Auctions

This chapter provides insights into bundling practices for online reverse auctions by exploring approaches and reporting experiences of 252 companies in the U.S. manufacturing industry. Within the context of Parente et al.’s (2004) conceptual framework for the analysis of online auctions, aspects of the “Product Characteristics” component were explored. Bundling issues investigated include content, goals, structure, and performance. Following the theme of the book, differences and similarities in bundling behavior and outcomes between small and large enterprises are emphasized, highlighting the impact of firm size and the resulting strategies explored. While large corporations are usually on the forefront of information technology adoption and use, the potential is significant for smaller firms as well. As such, this chapter provides managerial insights, useful especially to smaller companies, for successfully employing bundles in reverse auctions.

Reverse Auctions

Online reverse auctions are a relatively new phenomenon in business, although the practice of traditional auctions is centuries old. The online aspect of auctions is an example of a disruptive technology and its impact on the business world. The use of the internet has changed the face of competition in supply and also changed the way buyers and suppliers interact. This chapter is a topological classification of the current literature on e-procurement auctions with the intent of organizing current and future research in online procurement auctions.. Over 200 articles have been abstracted and reviewed. The authors develop three classification frames: content, theory, and methodology. Nineteen content areas are populated, including significant reference to the impact of auctions on the supply chain. In summary, this chapter seeks to increase the topic clarity of current research. The quality of each individual reverse auction paper is not evaluated. However, the classification should stimulate academics to pursue current and new avenues of reverse auction research.

Innovation and B2B E-Commerce

B2B E-commerce was expected to change the way buyers and sellers did business. In the face of the dot.com boom, many believed that this would be a fundamental change in business. Many expected that the internet as a disruptive technology would lead to real-time internet-based trading with implications for changes in the nature of buyer-supplier relationships, pricing, and industrial capacity.

Internet Reverse Auctions

Once a company implements an internet reverse auction platform, buyers often have considerable discretion as to whether or not to utilize it. This paper discusses many reasons for fire non-adoption of Internet reverse auctions. The focus is on factors that impact the fit between the Internet reverse auction technology and the characteristics of the particular purchasing task that the buyer must carry out (i.e., characteristics of the material or service to be purchased in the market that it is to be purchased from). Data (qualitative comments) were collected from buyers within one firm. The comments detail the reasons that buyers have not used reverse auctions for particular commodities. Of the 9 factors identified in the literature review, 4 were actually cited by buyers. These are: specifiability, level of competition for the buyer’s business, importance of non-price factors, and dollar volume