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Everyone Pays A Price When Low Bid Takes All

A new procurement phenomenon has invaded the material handling industry, an industry that has always taken pride in its ability to offer and sell value-added products and services to its customers.

I am referring to electronic bidding events, better described as reverse auctions. As businesses continue to consolidate, purchasing functions are being centralized. Purchasing and engineering staff cutbacks have occurred, and companies are expecting the same or more level of productivity with fewer resources, all in an effort to favorably impact earnings.

The e-bid/reverse auction facilitators feed off of this restructuring, presenting their pitch of streamlining the purchasing function for sources of supply agreements, while at the same time reducing costs of goods and services.

A number of prominent companies have succumbed to this sales pitch and used the reverse auction process to negotiate new supply agreements. Many of us have participated in such events with the outcome driven usually by low bid takes all.

In preparation for these events, we are directed to e-bid/reverse auction contacts to answer specification and other important questions concerning the product and services being quoted. Many times, these contacts have little or no knowledge of the critical aspects of our products and, in some cases, don’t seem to care. Many times, we quote on a best guess basis.

Reverse auctions destroy the important value-added selling process, and they demote our products and services to a commodity classification. When material handling equipment is looked upon as a commodity, we all lose.

This editorial may seem to be self-serving for our own interests. It’s not. Profit margins for both the manufacturer and the distributor suffer as a result of the realized purchase price savings. Most important, though, reverse auctions are not in the best interests of the end-user, despite the savings. We are assuming the reverse auction event selected the product most capable of satisfying the customer’s needs and the company most capable of supporting the program. That is a huge assumption, especially if low bid was the sole deciding factor.

What happens to a supplier/user relationship when margins are gutted? The user may expect the same level of response and support, but will it ever be the same as before? Probably not.

When the dust settles, is this in the end-user’s best interests? I think not. The eyeball to eyeball, press the flesh, relationship, value-added method of selling may seem old fashioned in this electronic age. However, it assures the end-user the opportunity to intelligently evaluate the proposals put before him and to make the best decision for his company. The decision then elevates itself from cost-to-purchase to cost-of-ownership.

We should become missionaries in the preaching of this anti-reverse auction gospel to our material handling customers. Everyone will benefit as a result.

Material Handling Equipment Distributors Association

Evan Wescoe Meet the Author
Evan Wescoe is senior vice president, industrial sales, at East Penn Manufacturing Co., Inc. in Lyon Station, Pennsylvania.

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