Material Handling Personnel Share
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In late March 2003, The B2B Research Center conducted an online survey to gauge opinion on the growing use of reverse online auctions for the purchase of material handling systems, equipment and supplies. The survey sought to understand the motivations, challenges, experiences and attitudes of buyers and sellers using and planning to use reverse auctions in their purchasing and selling practices.
Approximately 22,400 material handling industry personnel received an e-mail invitation to complete the survey; 1,265 respondents participated, for a 5.65% response rate. Of these 1,265 respondents, 500 were buyers (39.5%) and 765 were sellers (60.5%).
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Use of Reverse Online Auctions
Of all survey respondents, 19.6% said they use auctions, 20.5% said they
plan to use them, and 59.9% said they did not. The percentage of sellers
who are using reverse auctions (23.3%) is almost twice the percentage
of buyers (14.0%) who are presently using them. The number of buyers planning
to use reverse auctions in the future (24.4%) is 36% higher than sellers
who plan to use them (17.9%) in the future, suggesting continued buy-side
pressure to implement this form of purchase.
Goods and Services
Respondents who used or planned to use reverse auctions were asked what
material handling goods and services they buy or sell, or plan to buy
or sell using the auctions. Equipment (74.4%) was the number one selection
for this question, outpacing parts (33.5%) and systems (32.7%), followed
by other (19.7%), engineering services (17.4%) and support (15.2%).
Year Started or Planned to Start
Those who use reverse online auctions began at average in 2001. The earliest
year started was 1997 for sellers and 1999 for buyers. Those who plan
to use auctions are planning to do so in 2004. Suffice to say that for
the 20.5% of all respondents who plan to use reverse online auctions,
they believe the time is now for them to begin.
How Many Auctions
Roughly 60% of all respondents have participated in five or less auctions,
indicating that use of reverse online auctions is still in a fairly nascent
stage. Only 10.1% of these respondents indicated they had participated
in more than 25 auctions, revealing that there is a small group of aggressive
users of these auctions, but that most users still have only used them
sporadically since the average year of 2001 when these respondents indicated
they started using reverse auctions.
Impact on Vendor/Customer Relationships
Buyers on average said the impact on their vendor relationships was surprisingly
neither positive nor negative (-0.03 on a scale of -5 to +5). Sellers,
on the other hand, said the impact on their relationships as vendors was
a -2.41, an indication that the process seems to break down on the sell
side rather than the buy side.
Motivations for Auctions
Buyers cited saving money as their number one motivation for using or
planning to use reverse auctions. Sellers cited the opportunity to gain
new business and being forced by customers as their leading motivations.
There are two data points in the seller results that point to a split in perceptions between those currently using reverse auctions and those who plan to use them. That is, those who plan to use them rank the opportunity to gain new business as their paramount motivation. Those sellers who currently use the auctions indicated that being forced by customers was their primary motivation. That those sellers currently using auctions felt forced to use them where those planning to use them are hoping to acquire new business may suggest that those sellers desired by buyers to be invited have already been invited, and that there is a second tier of sellers who are hoping to join in.
Other motivating factors for buyers and sellers using or planning to use reverse online auctions, they appear to center on buyers being able to have more buying options and sellers having to answer to customers. Escalated by a down economy, the pressures on the buy and sell side are apparent.
Loss of Suppliers and Bids
Buyers and sellers who have used auctions were asked whether they have
lost important vendors/bids. Buyers were again essentially neutral (0.04
on a scale of -1 to 1), but sellers said they had lost bids (0.75) in
127 of 149 cases (85.2%). Once again, if we are correct that price pressures,
especially in the current down economy, are forcing the hand of suppliers
into a competitive downward pricing strategy, there must be some point
at which suppliers in an auction situation must back out and lose the
bid. These statistics seem to bear out that this is indeed the case.
Challenges Auctions Present
Respondents who have used auctions were asked about the challenges that
auctions present. Buyers were essentially neutral again on these issues
on a scale of 1 not an issue and 9 a major issue, selecting de-motivation
of their vendors (5.00) as their major issue. Sellers were more vociferous
on average than the buyers, citing lower profit margins (6.85), devaluation
of the relationship with the buyer (6.55), and educating purchasers on
commodity versus unique product attributes (6.53) as their major issues.
They also stressed maintaining service levels with eroded margins (6.29)
and loss of business (6.24) as important issues.
With overall results on these questions higher for sellers than buyers, there appears ample additional evidence that sellers in the reverse online auction purchasing process are faced with serious and unique challenges.
Auction Experiences
Buyers voted a lowered cost of goods as their number one experience (6.37
out of a perfect 9) with end-user savings (5.47) and improved profit margin
(5.40) as secondary reasons. These results seem to represent cost reductions
above operational efficiency as the importance of reverse auctions for
these buyers.
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For sellers, passions seemed inflamed by these experiences. A focus on price, not value, was their loudest choice with an 8.20 out of a perfect 9. Not bidding “apples to apples” (7.42), decreased profit margin (7.37), and less partnering with customers (7.22) produced an almost equal response. It is clear from these results and the results of the previous challenge questions that material handling sellers using the reverse auction process are facing large potential stressors to their pricing and selling practices.
Conclusions
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. Sellers
in this survey strongly indicated their dissatisfactions and pains, including
the loss of profit margin and business, the erosion of value-added selling
and service, and a negative impact on their 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.
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That said, it does not appear that the growing trend toward the use of these auctions is going to stop. While only 20% of those surveyed have used auctions and 60% of them have only used them one to five times, another 20% of those surveyed said they intend to use them within the next year. From the motivations elicited by these respondents, such as sellers being forced by buyers to participate and buyers seeking lower costs, it is clear that there is in fact a growing and steady buy-side pressure for the material handling industry to use these auctions. These pressures are no doubt aggravated by the sluggish economy and cost-reduction pressures on purchasing managers.
The B2B Research Center is a private research center located in Carrboro, North Carolina and on the Web at www.b2bresearchcenter.com.
