Purchasing Case Study

ANALYSIS
A six-month process costing thousands of dollars, resulted in the loss of an existing part contract. This was not a desirable outcome. The winner was a transport company that bypassed the“infomediary” in winning the contract. AusBuyer received a 20% reduction in their logistics in one channel. In another channel where only one supplier pre-qualified the existing contract price wasinflated by 5%. In this case the auction dynamic was missing and therefore no savings were made.
For the supplier there are many issues to consider. Firstly, the web auction format is able to link buyersand suppliers directly thereby cutting out any middle operators. Traditional suppliers will need to engage the e-Markeplace channel to access the growing number of organisations moving towardse-Sourcing. Secondly, the cost to participate is considerable when we consider the size of the participating supplier. Australia has a high proportion of small and micro-business, will the nature and scopeof reverse auction suit the current Australian business landscape? Thirdly, the whole issue of driving costs down at the possible expense of contract servicing is crucial. This is demonstrated when wesee the auction format not favoured in Asian markets where service is considered paramount. Finally the ability of the auction to drive dynamic pricing produces an ethical dilemma. Wyld (2001, p. 18)refers to the auction principle where there is always another group willing to lower your bid. Do we want business run only on the bottom line?
AusSupplier had prided itself on providing a servicesecond to none. Any glitches in the previous contract like variability of supply of the commodity or problems in logistics or shipping never presented a problem.
In this case AusBuyer was underpressure to drive down prices due to the global marketplace, but will there be a price to pay if the contract lapses and a premium needs to be paid to bring in another supplier to complete the...