It was the best of times, it was the worst of times.

June 12th, 2008

This is the opening sentence of A Tale of Two Cities by Charles Dickens. As regards our subject matter, it is the best of times for retailers to run Reverse Auction e-procurement events.

Prices continue to rise across the board. Groceries climb each week, if not each day. Gas prices are ridiculous and causing companies to take unique approaches to retaining their employees. One employer recently measured the cost of hiring and training replacements versus reimbursing existing employees for their gas purchases above $2.57 per gallon, and decided on the later. But, that’s off the subject.

All companies in good times and in bad do what they can to contain or lower their costs. This happens on the expense line and on the cost of sales or cost of goods line. Which can have the most impact is a constant debate. I personally have always supported attacking the cost of goods line as it represents pre gross margin spending against the largest expense category. During challenging economic times like today, it may even be a better time to use reverse auction tools to procure your goods and supplies. Smaller companies that may not have willingly competed for your business in the past based solely on their size may in fact be very aggressive and willing to accept lower margins, zero margins, or negative margins just to help their cash flow. This is generally not the case in a good economy. Obviously your incumbent supplier’s don’t want to lose your business and will be aggressive in order to keep it. This is the formula for a successful reverse auction.

Supporting this philosophy has to be the fact that you have a robust source of suppliers in order to drive participant count. Tools that provide this data are available on a short term subscription basis and easy to use.

Unfortunately many retailers do not use these tools or are unaware of them, or only use them for a limited portion of their total spend. This is not the case outside of retail where up to 80% of spend is targeted using these type of tools.

It’s a great time for retailers to use reverse auctions.

I look forward to your comments.

Ron

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