Material Handling Sellers Dragged Into Reverse Online Auctions

Jun 06, 2003 9:30 PM  By

A survey

conducted in late March 2003 by the B2B Research Center—a provider of market-driven research and analysis to the business-to-business community—clearly shows that the growing use of reverse online auctions for the purchase of material handling systems, equipment, and supplies is not winning any friends among sellers. Buyers, on the other hand, are largely neutral on the topic.

Sellers in this survey strongly indicated their dissatisfaction, noting that they had suffered the loss of profit margin and business, the erosion of value-add selling and service, and a negative impact on relationships with their customers. While buyers credit the auctions for bringing lower cost of goods and end-user savings, they seem to also have misgivings about the reverse online auction process.

Among the key findings:

Which goods and services? Survey respondents who use or plan to use reverse online auctions were asked what material handling goods and services they buy or sell, or plan to buy or sell, using the auctions. The number one use of reverse online auctions for current or potential buyers and sellers is equipment (74.4% overall). Spare parts (33.5%) and systems (32.7%) followed, with “other” (19.7%), engineering services (17.4%), and support (15.2%) trailing behind.

Impact on relationships. Respondents who have used reverse online auctions were asked the relative impact it had on their relationships with their vendors or customers. (The question used a –5 to +5 scale.) While buyers were on average (–0.03) neutral on this measure, sellers were fairly negative, scoring it a –2.41 on average, with 28% of sellers ranked this as a –5 impact. Clearly, material handling sellers who have used these auctions are not enamored with the effects on their customer relationships. Sellers are also not positive about the effects on their vendor relationships, scoring it on average as neutral.

Motivations. Saving money is the leading motivator for buyers, with saving time coming in second. These results indicate the buy-side price pressure that is motivating the use of reverse online auctions; results were consistent among those who use and plan to use reverse auctions. On the sell side, the results indicate that the two leading motivations are the prospect of obtaining new business, and being forced into it by buyers. Overall revenue pressures on the sell side are the most important, with their converse cost pressures on the buy side the leading pressures there. Escalated by a down economy, the pressures on the buy and sell side are apparent.

Consequences. Buyers and sellers who responded that they have used reverse online auctions were asked whether they felt they had lost important suppliers or bids due to the process. Overall, buyers again scored this measure as fairly neutral, with 66.0% of respondents who answered this question saying the process resulted in no change. On the sell side, however, there was an enormous slant towards having lost bids because of reverse auctions. Of the 149 sellers who answered this question, 85.2% said they had lost bids because of reverse auctions.

Fairness. As the perceived fairness of the reverse online auction process appears to be a factor in its successful use, the survey asked those who have used or plan to use auctions to rate the process as fair, unfair, or no opinion. Buyers suggested that the process leaned to being fairer than not, but sellers were strongly of the opinion that they were not fair. Respondents who answered that they thought the reverse online auction process was unfair were asked to say whom it favored; interestingly, not only sellers, but also buyers who said reverse auctions were unfair also said they favored the buyer.

Future growth. While it is clear from this research that all is not well when it comes to the use of reverse online auctions in the material handling industry, it does not appear that the growing trend towards the use of these auctions is going to stop. Though only 20% of those surveyed have used auctions and 60% of them have only used them 1–5 times, another 20% of those surveyed said they intend to use them within the next year.

It is clear, concludes the B2B Research Center, that there is in fact a growing and steady buy-side pressure for the material handling industry to use these auctions—no doubt aggravated by the sluggish economy and cost-reduction pressures on purchasing managers.

More detailed results and additional information are available at B2BResearchCenter.com, or by e-mailing info@b2bresearchcenter.com.