Internet auctions create a market for electronic components
EW InsideVIEW 17/03/2004 – Internet auctions create a market for electronic components
Internet auctions create a market for electronic components Alex Mayhew-Smith
Internet auctions have matured beyond the nail-biting eBay searches for that rare pink-vinyl copy of a Bay City Rollers single you have to have.
Deals for electronic components worth millions of pounds are decided in half an hour of Internet bidding and the process is saving companies money.
James Anthony, a director at online auction advice firm e-Three, says he has seen contracts for $45m concluded in half an hour. But this is the reverse auction, where the seller is actually buying.
Companies looking to source volume components are using the e-auction process to find the best and most reliable deal for themselves, says Anthony.
This type of auction normally works with the company looking to source parts setting up an auction, selecting which firms should take part through invitation and choosing a winner from the firm offering the cheapest deal.
According to Anthony the average saving for a firm procuring parts this way is 15 per cent. At contract manufacturer Axiom Manufacturing Services in South Wales, senior commercial executive Dave Davies says the saving can be more, up to 25 per cent. Of particular interest is inviting, he says, your incumbent supplier to take part in an auction; it can be surprising how much cheaper they can go.
It also saves time and money for the suppliers and the procuring firm, says Davis. Axiom recently won a £4.7m, two year contract in one auction despite it being the first time supplier and buyer had come across one another.
The firm has been involved in e-auctions for about three years, says Davis. It has been using the Free-Market e-auction provider and has also conducted an auction for itself when it was looking to source components.
In the auction Axiom joined up with another firm; they were both looking to source the same product. They did indeed make a saving of between 20 and 25 per cent, he says. We have won two contracts and are involved with between one and two auctions per quarter, he says. All the firm’s account managers are trained to take part in an e-auction.
Other firms have yet to start using the e-auctions. Abacus and Zetex both said they did not get involved in the process.
Bidding is anonymous in the auction, with companies labelled – Company A, Company B and so on. If you found you were bidding against Flextronics you would think you wouldn’t have a chance and if there are firms competing at your level you will be asking how they can do it at that price, says David. It is better, he says, for the auction to remain anonymous.
Winning an e-auction is not easy as it sounds, says Anthony. You may have the cheapest deal but that does not guarantee that the buyer will pick you for the contract. Buyers usually take the top five offers and then make a decision. It is a way of acquiring a portfolio of prices. In an e-auction a business decision is based on values that are not defined by the price, says Anthony.
At Axiom, Davis says the wining bidder is almost always not the cheapest. There is always someone mad enough to sit there and watch the price and then cut it by half right at the end. Two or three firms are chosen and then the auction company does an audit, he says.
In an e-auction firms feel that they only have the price to fight with and are unable to see the value of their name, says Anthony. A lot of suppliers from Eastern Europe and Asia are entering e-auctions but not winning even though their prices are cheaper. They need to differentiate themselves in order to win.
James Anthony at e-Three points out that the e-auction procurement method is relatively young and there are still problems with it. There is work for the buyer and supplier to do to prepare for the auction, at the moment that happens erratically. Auctions can also vary, some are not run ethically… a seller can put in a bid to drive the price down and suppliers can collude.
e-Three is proposing to introduce a code of conduct for the auctions that will act as a mark of quality, similar to the authentication and security badge VeriSign on the Internet. e-Three’s code of conduct is called ICE (Integrity Code for E-auctions).