E-auctions & Supply Chain Management By Mikael Thakur

E-Auctions – A Major Trend in Supply Chain (Literature Review)

Mikael Thakur Kyle Seidler Jun Bi Anshul Goswami Mohan Mogulla SCHULICH SCHOOL OF BUSINESS -YORK UNIVERSITY 4700 Keele Street, Toronto, Ontario, M3J 1P3 Masters of Business Administration (MBA) Program

1 | Page

E-Auctions – A Major Trend in Supply Chain Table of Contents ABSTRACT...................................................................................................................................................................3 1.0 INTRODUCTION...................................................................................................................................................4 2.0 METHODOLOGY & SOURCES..........................................................................................................................5 3.0 LITERATURE REVIEW.......................................................................................................................................6 4.0 TRADITIONAL PROCUREMENT METHODS................................................................................................7 5.0 IMPACT OF E-BUSINESS ON SUPPLY CHAIN...............................................................................................8 6.0 ROLE OF E-AUCTION IN SUPPLY CHAIN...................................................................................................10 6.1 E-COMMERCE.........................................................................................................................................................10 6.2 E-PROCUREMENT.....................................................................................................................................................11 6.3 E-COLLABORATION...................................................................................................................................................11 7.0 E-AUCTION DEFINED.......................................................................................................................................12 7.1 MAJOR TYPES OF E-AUCTION....................................................................................................................................12 8.0 HOW E-AUCTIONS WORK..............................................................................................................................13 8.1APPPLICATION OF E-AUCTION....................................................................................................................................15 8.2 E-AUCTION TECHNOLOGY........................................................................................................................................15 9.0 BENEFITS AND LIMITATIONS OF E-AUCTIONS.......................................................................................15 9.1 BENEFITS OF E-AUCTIONS.........................................................................................................................................15 9.2 LIMITATIONS OF E-AUCTIONS....................................................................................................................................17 10.0 CHALLENGES AND ISSUES WITH E-AUCTION.......................................................................................19 10.1 CONFLICTING OPINIONS – BUYER/ SUPPLIER RELATIONSHIPS........................................................................................19 PROCUREMENT TRENDS, HTTP://WWW.EPIQTECH.COM/E-PROCUREMENT-TRENDS.HTM, EPIQ, ACCESSED ON APRIL 8, 2008.......41 10.2 SUSTAINABILITY – BUYERS PERSPECTIVE..................................................................................................................20 10.3 SUSTAINABILITY – SUPPLIERS PERSPECTIVE...............................................................................................................21 11.0 TRENDS AND FUTURE OF E-AUCTIONS...................................................................................................21 12.0 CONCLUSION....................................................................................................................................................23 APPENDIX 3 –E-AUCTION EXAMPLE (SUN MICROSYSTEMS)...................................................................32

2 | Page

E-Auctions – A Major Trend in Supply Chain ABSTRACT Purpose: The purpose of this paper is to present an analysis of the impact of e-auctions (reverse auctions) in today’s supply chain management methodology with a focus on the current limitations and the future potential of the sourcing mechanism. Design/ Methodology/ Approach: Through the use of an extensive literature review, this paper will explore the current knowledge on e-auctions, the present trends around its integration within operations and the future expectations for this sourcing method. Particular interest will be given to the roll of e-auctions, their benefits, and the limitations within supply chain management. Findings: This paper highlights major benefits and limitations of e-auction from buyers and supplier viewpoints. Moreover, it succinctly describes the challenges and issues within e-auction framework and showcases where the e-auctions are heading in the future. Research limitations/ implications: Even though there is sufficient literature available on this topic, several supply chain researchers have expressed conflicting opinions on e-auctions in terms of cost, quality and buyer-supplier relationships.

3 | Page

E-Auctions – A Major Trend in Supply Chain 1.0 INTRODUCTION As the growth of internet based commerce accelerated during the 1990’s operation managers increasingly looked for new and novel ways to strategically capitalize the electronic networks via improved supply chain methodologies. One of the newest mechanisms to gain popularity in the latter part of the decade was e-auctions (also known as online reverse auctions). Carter et al. (2004) defined an e-auction as a real-time auction between a buyer (including an organization) and multiple invited suppliers, where suppliers can submit several bids during the specified time period of the auction. This concept was introduced to improve the efficiency of distributing requests for proposals to larger markets while easing the bid evaluation and selection process. For more than a decade, e-auctions have brought significant advantages in terms of quantitative and qualitative supply chain factors, thereby signifying its growing importance within the supply chain framework. Theoretically, the buyers should realise savings by reaching a larger volume of qualified suppliers which will result in reduced purchase prices. At the same time, suppliers should benefit due to the means of reaching a larger customer market and increasing sales volume. For both parties, lower transaction costs are the driving benefit.1 However, unqualified bidders, like brokers, who are incapable of supplying the product have been found participating in the auctions.2 Furthermore, while early data suggests that the variance in purchase price per unit provides positive results, the total operation costs are often higher once the costs of implementing the auction are included. To add to the confusion, the cost information provided by the auction administrators is often skewed to show only end of auction values.3 Beyond the desired cost savings, e-auctions provide potential strategic opportunities for buyers and suppliers alike. Most significantly, e-auctions provide an efficient means for 4 | Page

E-Auctions – A Major Trend in Supply Chain obtaining market information about world-class suppliers, buyers and competitors. The increased information flow combined with the reduced time requirement for transaction processing allows for reduced forecasting horizons and additional effort to be placed on strategic sourcing.4 The unfortunate negatives surrounding the mechanism include an increased focus on cost over quality, service and relationships. In addition, mistrust between buyers and sellers have grown due to opportunistic objectives being assumed.5 In spite of the negative cogitations surrounding e-auctions, many Fortune 2000 organizations continue to pursue the activity with the expectation of reduced purchase prices.6 The greatest potential for the sourcing strategy is expected within bulk, commoditised and easily specified goods with low switching costs. Specialty items with custom modifications or non-standard sized order may complicate the logistics of information flow in the electronic system. That being said, senior management often still support the activity due to early reports of success and a failure to utilize total cost metrics.7

2.0 METHODOLOGY & SOURCES The research conducted has relied upon a rigorous literature review of peer reviewed and academic articles combined with support from additional information gathered via online trade journals. The focus of the investigation has been towards the effects of e-auctions upon the supply chain management framework. Our intention is to determine the composition of this sourcing mechanism, its trends and the future potential in sourcing management. Initially we focussed upon the traditional procurement methods, then emphasized upon the impact of ecommerce on the supply chain management. Next, specific attention has been placed upon the various roles in which e-auctions are utilized within supply chain management. Thereafter, we focused upon the e-auctions’ working mechanism and their benefits and limitations in industry 5 | Page

E-Auctions – A Major Trend in Supply Chain today. Finally, the research has been expanded to determine the current trends, challenges and the future opportunities facing the mechanism. The primary sources for our research come from public online journals, ‘ABI/Inform’, ‘ProQuest’ and the Schulich School of Business Library.

3.0 LITERATURE REVIEW In the supply chain management literature, high attention has been focused on electronic medium and its potential benefit to an organization's supply chain capabilities (Sehwail and Ingalls 2003). Since the emergence of e-auctions in the mid 1990’s as a cost savings mechanism within procurement methodologies (Kumar and Chang, 2007), it has gained significant press throughout supply chain management literature (Sehwail, 2006) in regards to its potential benefits and limitations. Within the first ten years of its usage, from 1995 until 2004, e-auctions were involved in transactions totalling over $70 billion worth of goods and services. (Zaccone, 2004) Within this context, one major supply chain trend is the use of e-auctions to obtain efficiency within supply chain framework (Supply Chain Digest 2007). Virtually every major industry has begun to use and adopt e-auctions on a regular basis (Smith 2002). The phenomenon of eauctions in supply chain has been receiving increasing attention among researchers from purchasing and supply management (Jap 2002; Smeltzer and Carr 2002; Sehwail and Ingalls 2004). E-auctions have been depicted as a procurement tool capable of benefiting both suppliers and buyers. (Supplier Selection & Management Report, 2003) There are many contradictory opinions on the value of e-auctions in the marketplace and whom, if anyone, benefit most. (Zaccone, 2004) The mechanism promotes cost savings (Kumar and Chang, 2007) while increasing access to potential suppliers and enhancing buyer supplier 6 | Page

E-Auctions – A Major Trend in Supply Chain relationships. (Losch and Lambert, 2007)

Opponents to the system suggest the costs savings

are smaller than most expect or often nonexistent when the total procurement costs are considered (Emiliani, 2006). Furthermore, using e-auctions, product quality can be negatively affected and buyer-supplier relationships are damaged or destroyed. (Nair, 2005) Suppliers view buyers as being opportunistic by placing unrealistic demand upon the agreement. (Tonbridge, 2003; Nair 2005) In addition, buyers are seen as making decisions based primarily on price, disregarding the value of quality (Emiliani and Stec, 2005) and established relationships.(Chain Store Age, 2003) Several academic journals highlighted the negative effect on the buyersupplier relationship as the biggest concern related to using e-auctions (Jap 2000; Sehwail and Ingalls 2003; Smeltzer and Carr 2003). Executives are suspected of encouraging the usage of eauctions due to misrepresentation of costs/benefits process by the marketmakers (Emiliani, 2006). The most noted message for e-auction is that while it has its place within procurement, individuals and organizations alike must be cautious while determining if e-auctions is an appropriate mechanism for their required activity. (Crane, 2008)

4.0 TRADITIONAL PROCUREMENT METHODS Procurement is the process of establishing agreements for buyers to acquire good or services from available suppliers. In general, this process includes, amongst other things, establishing a price, delivery, timing, and conditions upon which, the item is to be transferred. There are many steps that may be included within the process from initial specifications to negotiations and order fulfillment. One of the main challenges with establishing a procurement contract is managing the information flow among all the stakeholders. One traditional method of handling this is the bidding or tendering process. With this method a buyer will issue a written Request for Proposal (RFP) detailing the specifications for the 7 | Page

E-Auctions – A Major Trend in Supply Chain acquisition to potential suppliers and sealed tenders are invited over a specified period. The suppliers will then return official bids detailing the offering. After the tender submission period, the tenders are opened and examined for another period, usually for approximately 4 weeks, and then awarded to a supplier based upon pre-decided evaluation criteria. On commodity items, the deciding factor may be limited to price and/or timing of the delivery. More complex purchases may require a series of negotiations to ensure quality, reliability and trust between the parties involved.

5.0 IMPACT OF e-BUSINESS ON SUPPLY CHAIN For the last few decades, all businesses across the industry have been influenced by the ebusiness technologies. Since that time, we have witnessed how information technology has revolutionized supply chain management. In 2003, researchers estimated the online business-tobusiness (B2B) is around 78% of the overall e-business market, which signifies the importance of usage of internet technologies within businesses.8 Researchers have focused on the significant effects of the e-business and Internet revolution on supply chain management practices and concluded that the Internet will enable organizations to achieve high cost efficiencies and allow organizations to react quickly to major market changes9. The use of Information Technology is critical in supply chains because it enables dynamic reconfiguration of organizational structures and adds flexibility to supply chain processes10. Supply chain management has been literally reinvented by the new networked technologies and the business processes and practices that these technologies facilitate, such as eprocurement, e-marketplaces, e-logistics, collaborative commerce, e-auction, just-in-time (JIT) production, customer interface, and web-based package tracking11.

8 | Page

E-Auctions – A Major Trend in Supply Chain By taking their supply chains online, organizations realized significant savings across the supply chain, thus they are quite supportive of the evolution of the e-business12. Online marketplaces help buyers reduce their unconventional spending (including their expensive emergency buying), since every item is pre-negotiated and catalogued13. In addition, these benefits also include reducing bullwhip effect by better information management through accessing more suppliers, exchanging information real-time with a single point of access to ensure consistent workflow, decreasing processing errors, and reducing information technology complexity by reducing the electronic connections established with suppliers14. Nowadays, several manufacturers are doing business with vendors they never knew existed a decade ago simply because they were located in a different part of the world. By allowing businesses to expand their horizons, ecommerce has given them the tools to truly find the best and most affordable suppliers. While before, the buyer had to create a complex RFP, distribute it to potential vendors, wait for their responses, then sift through each of their proposals individually in order to make a decision, nowadays, enabled by the internet, the entire process can be completed in 3-7 days instead of weeks or months. Following table highlights the comparison of Traditional model vis-à-vis eBusiness model Traditional Procurement Model Based on personal contacts High investment in assets Standardized products in large volumes High transaction costs High inventories Restricted flow of information Focus on profits

eBusiness Model Highly dependent on electronically based communication and relationships Lower investment in assets Made to order based on customer demand Low transaction costs Rapid Information flows replace inventory Free flow of inter-organizational information Focus on supply chain efficiency, growth and profits

(Source: Antonnette, G., Giunipero, L.C., Sawchuk, C. (2002), E-Purchasing Plus: Transforming Supply Management through Technology, JGC Enterprises)

9 | Page

E-Auctions – A Major Trend in Supply Chain 6.0 ROLE OF E-AUCTION IN SUPPLY CHAIN Following the e-Business framework designed by Lee and Whang (2002c), we will explore the role of e-auctions in Supply Chain Management. This framework assigns all e-Business applications into three main categories, namely e-Commerce, e-Procurement, and eCollaboration.

6.1 E-commerce E-Commerce assists a network of supply chain partners to identify and respond quickly to changing customer demands captured over the Internet.15 Within e-Commerce segment, eauctions has brought huge efficiency for organizations in supply chain areas such as order fulfillment process, cost structure, profit contributions, logistical requirements, service quality, degree of market segmentation, access to demand/supply information and return policies. Eauctions have also led to the effective formation and utilization of e-fulfillment in e-Tailer businesses through its ability to customize the diverse requirements across industries, buying situations, and types of products.

(Source: Johnson M. et al (2002), Ebusiness and supply chain management: An overview and framework, Production and Operations Management Journal)

10 | P a g e

E-Auctions – A Major Trend in Supply Chain 6.2 E-procurement E-Procurement allows organizations to leverage the Internet for procuring direct or indirect materials, as well as handling value-added services such as transportation, warehousing, customs clearing, payment, quality validation, and documentation.16 The key aspect of e-procurement is to include the end-user (requester) in the procurement process via an electronic multi-vendor catalog and to close the process gaps (e.g. re-entry of data) in the supply chain for indirect goods (Neef, 2001). E-auctions offers a common platform to facilitate efficient procurement as numerous buyers and sellers find each other and transact according to some pre-specified protocols, governed by the marketplace or traders’ internal rules. Modern manufacturing requires flexibility in order to cope with strong competition, fast changing customer preferences, shortening product life cycle and product variety proliferation. An efficient material procurement via e-auctions is needed to support flexible manufacturing.

6.3 E-collaboration E-Collaboration facilitates online coordination of various decisions and activities beyond transactions among the supply chain partners17. These activities include information sharing and integration, decision sharing, process sharing, and resource sharing. Procurement through collaborations deals with the strategy development, supplier selection, negotiation, supplier evaluation, and supplier development. Several researchers indicated that similar to ecollaboration, e-auctions is concerned with continuous supplier management in terms of supplier evaluation and development to improve the overall cost performance of the supply chain. Moreover, e-auctions empowered by the information flow of e-collaboration will help greatly to reduce the impact of bullwhip effect and can be utilized in developing a commodity sourcing strategy. Furthermore, e-auctions can greatly improve purchasing process through automating 11 | P a g e

E-Auctions – A Major Trend in Supply Chain requisitions and purchase orders for goods and services, decentralizing buying, connecting to suppliers directly and improving employee compliance with preferred supplier policies.

7.0 E-AUCTION DEFINED CAPS Research (2003) defined an e-auction as an online, real-time dynamic auction between a buyer (including an organization) and a group of pre-qualified suppliers who compete against each other so as to win the business of supplying products or services that have pre-defined specifications for design, quality, quantity, delivery, and related terms and conditions. Within this e-auction, these suppliers compete against each other by bidding online using specialized software by submitting successively lower-priced bids during a scheduled time period. Additionally, Sehwail and Ingalls (2004) defined e-auction as the real-time electronic bidding event, which a company uses to outsource products/ services with reducing bid prices, and bidders would be allowed to enter bids once or continuously as per the auction format. Interestingly, in this e-auction, there exists some degree of visibility among suppliers regarding the actions of their competitors towards getting the contract for supplying products and services to the buyer.18 Furthermore, e-auction design is not one-size-fits-all as its design is based upon the several aspects present in the marketplace such as technology, business processes, preference of different players, power disparity between buyers and suppliers etc. Thus, based on these aspects, we will view how buyers apply different types of e-auctions to distinctive categories within the supply chain.

7.1 Major Types of e-auction Following are the five different types of e-auctions19: 1. Reverse English 2. Reverse Japanese 3. Reverse Dutch 12 | P a g e

E-Auctions – A Major Trend in Supply Chain 4. Weighted/ Multi-Attribute

5. Sealed Bids The first three auction types: ‘English’, ‘Dutch’ and ‘Japanese’ are typically used in a priceonly environment. However, ‘Weighted/ Multi-Attribute’ auctions put emphasis on non-price attributes, and can deliver effective results in the appropriate categories20. ‘Sealed Bids’ are most useful where the bidders could not compete effectively because source of products/ services cannot be specified clearly21. (For details on each auction, see Appendix 2)

8.0 HOW E-AUCTIONS WORK An e-auction allows suppliers to use internet-based software to bid against each other online and in real time against a published specification from a single buyer. Within this auction, suppliers can bid for the posted contract at the buyers’ internal marketplace or at one hosted on a neutral site, such as eBreviate.com or FreeMarkets.com. The buyer will post the RFP with specific requirements and a starting value and suppliers will bid against it until the auction closes. The lowest price is not always the criteria to win a successful bid, but one who offers value and speed of delivery along with quality and reliability. After bidding has ended, parties will contact each other and arrange payment and delivery terms as well. Several organizations have utilized e-auctions successfully. An example of e-auctions has been described in Appendix 3. Researchers presented four general guidelines for successful implementation of an e-auction event: the buyer must clearly state the commodity specifications, the purchase lots must be large enough to encourage suppliers to bid, the appropriate supply market conditions must exist, and the correct organizational infrastructure must exist for the buying organization.22 Following flowchart describes the step-by-step procedure of e-auctions:

13 | P a g e

E-Auctions – A Major Trend in Supply Chain

Source: Office of Government Commerce, http://www.ogc.gov.uk/assets/images/eAuction_next_steps.gif

(For details on e-auction process, see Appendix 1) 14 | P a g e

E-Auctions – A Major Trend in Supply Chain 8.1Appplication of E-Auction E-auctions are relevant to the products or services of considerable market competition, a minimum of four suppliers is considered as a healthy level23. Moreover, the contract offer should also be large enough to attract the suppliers i.e. the predictive savings must exceed the cost of eauctions. On the other hand, there are following areas, where e-auctions is not relevant and not advisable. First, if the suppliers have demonstrated the sign of not being able to cut the prices further than e-auction is not a correct option. Second, if most of the suppliers do not have internet availability to participate in the process. Third, if the buyer has to initiate the process only for short period and is not looking to initiate a strategic partnership with supplier(s) Undoubtedly, e-auction, which has the immense capability in terms of its usage, is an emerging supply chain trend and was considered to be top 10 trends in 2007.24

8.2 E-Auction Technology The e-auction does not require any specialized computer equipment nor do they need any extra software to be downloaded onto their computer hardware. The only basic requirement is a reliable Internet connection with a recent Microsoft’s Internet Explorer Version.

9.0 BENEFITS AND LIMITATIONS OF E-AUCTIONS E-auction delivers innumerable benefits to both buyers and suppliers across the supply chain in terms of overall costs, strategic sourcing, supply chain efficiency and compatibility with other quality practices such as JIT and others.

9.1 Benefits of E-auctions In this section, we will analyze the e-auctions’ benefits from buyer and supplier viewpoint. From a buyer’s perspective the advantages of e-auction depend on the buying situation, the strategic importance of the product, and the existence of international standards for the product25. 15 | P a g e

E-Auctions – A Major Trend in Supply Chain Yet the researchers, due to increased competition, have generalized these benefits for buyers in terms of lower transaction costs, shorter order cycle-times, and competitive purchase prices26. Additionally, e-auction attracts buyers with the appeal of low prices, a broader supplier base, and highly efficient procurement process27. Several large companies reported decreases in purchase prices by 10 % or more of those prices by using e-auctions28. Organizations, such as ‘Quaker Oats’ and ‘Smith Kline Beecham’, reported millions of dollars in cost savings with e-auctions compared to traditional purchasing methods29. However, strategic advantages of e-auctions are more significant than mere cost savings across the supply chain. Using e-auctions, supply analysts can identify several world-class suppliers, gather and analyze market data, and focus on strategic sourcing rather than on processing transactions only. Interestingly, the classic economic order quantity (EOQ) model suggests that as ordering costs are reduced, it becomes economical to order in smaller quantities, resulting in lowering total inventory holding costs30. Thus, with the use of e-auctions resulting in lowering ordering costs, organizations should have lower inventory costs31. It is known that Just-in-time (JIT) purchasing and having small quantities of materials delivered frequently can lower the buyer’s inventory costs and purchase prices32. Researchers suggest that e-auctions are compatible with a just-in-time strategy because sourcing can be done quickly33. The Gartner report (2001) stated that the buyer’s ability to identify new suppliers quickly through electronic medium is quite useful, especially in a fragmented industry. As per IDC study (2001), additional benefits for buyers might include process cost reduction and accelerated product development. On the other hand, suppliers can benefit by obtaining market information about buyers and other competitors, having an outlet to better manage excess capacity, and competing for business from new customers34. E-auctions provide an opportunity for suppliers to gain a better

16 | P a g e

E-Auctions – A Major Trend in Supply Chain understanding of the buyer’s financial goals by viewing buyer’s opening price ceiling for the specified product/ service. Suppliers also gain valuable information about their competitors’ cost structures that can help them to become more effective, thereby providing value to the buyers in the long run35. Several researchers emphasized upon the key benefits of e-auctions and listed four key reasons, as perceived by buyers, for suppliers to use e-auctions: new business, market penetration, inventory management and cycle time reduction36. Following table shows the benefits to the buyers and suppliers within the supply chain. Benefits For Clients 1. Reduces the cost of products/ services 2. Reduces negotiation process time 3. Is an easy process to repeat with other 4.

5. 6. 7. 8. 9.

products Encourages development of closer supplier relationships. (Alternate opinions will be discussed in the report) Availability of quality market information. Wider pool of sellers to choose from. Improved inventory management. Short and improved purchase orders. Strategically fits with JIT management.

Benefits for Suppliers 1. Improves discipline in the tendering process 2. Encourages transparency of pricing and ability to react to competitors' prices 3. Reduces negotiation process time, thereby promoting convenience 4. Short and improved bids due to elimination of travel, paperwork etc. 5. Allows suppliers to track their status relative to competitors. 6. Access to new geographic markets. 7. Strategically fits with JIT management.

9.2 Limitations of E-auctions Regardless of the aforesaid benefits within the supply chain framework, e-auctions still fall short in few areas. Most academic journals and business press articles agree that the negative effect on the buyer-supplier relationship is the biggest concern related to using e-auctions37 38 39 40 41

. As e-auctions by nature are the buyer driven tools, which explains that the transparency and

power are not balanced in the buyer and supplier relationship42. A buyer need not be as committed or invest as much as in the traditional formats. Such an unbalanced business environment can lead to reduction in trust, commitment, expected continuity, satisfaction and investment into the relationship43. Many buyers are anxious that using e-auctions might destroy 17 | P a g e

E-Auctions – A Major Trend in Supply Chain their relationships with the suppliers. This fear is especially pronounced when the buyer and the supplier have had a long working history and they have spent decades building strategic alliance partnerships based on trust and loyalty. With the announcement that an e-auction would be used, the buyer was possibly indicating that the supplier was no longer meeting the expectations of the buying organization44. On few occasions, researchers noticed that the cutthroat price war between the bidders leads to compromise on quality issues. Because e-auctions seem to emphasize cost over other qualifications, many buyers may choose the lowest bid only to find out that it includes shoddy workmanship, low quality products, and slow delivery times, which in turn cost them more in the long run. Judgmental errors may occur in the process of quoting the bid lower than that appear on the screen. Furthermore, there is scope for the introduction of ‘Ghost bidders’ by unscrupulous buyers so as to increase the bidding price among the genuine suppliers. Other limitations include suppliers’ not participating in the auction. In theory, only two competitor firms are required for an auction. But economic game theory indicates that when only two competitors exist, they are not inclined to participate in either a ‘reverse’ or ‘forward’ auction. Even though only two parties may well be involved in the final stages of bidding, at least four or five viable, competitive bidders are generally required to begin an auction45. Another risk is that the sellers may get caught up in what may be termed “the race.” Bidders may get so caught up in the emotion of the race or competition that they offer unreasonably low prices46. On the other hand, buyers are also facing the risks of e-auctions. With the aforesaid benefits of e-auctions, buyers, on few occasions, could not anticipate the hidden costs such as costs associated with changing and approving suppliers, monitoring new suppliers, using

18 | P a g e

E-Auctions – A Major Trend in Supply Chain additional manpower to move products from one supplier to the other, employing technical assistance, and the services of the market maker. In summary, the practical, legal and ethical limitations on part of e-auctions can be highlighted as follows: 1. Possibility of fraud and anonymity

2. Limited participation 3. Reoccurring order fulfillment costs 4. Possibility of harming strategic relationship with supplier 5. Low cost vs. best value issues 6. Risk of plotting ‘Ghost bidder’ 7. Lack of negotiable terms and conditions 8. Hidden costs associated with the process

10.0 CHALLENGES AND ISSUES WITH E-AUCTION 10.1 Conflicting opinions – Buyer/ Supplier Relationships In recent studies (Carbone 2003), some researchers have identified apparent negative effects of e-auctions on buyer-supplier relationships. In addition, many authors have assumed that eauctions are detrimental to effective construction and management of buyer-supplier relationships (Craig R. Carter, and Lutz Kaufmann 2007). On the other hand, some researchers have also argued that both market efficiency as well as long term relationship can be dramatically improved if e-auctions are used properly (Adam J. Fein, 2002). Therefore, finding out the answers for the questions of how and when E-auctions have seemingly different effects on buyer supplier relationship become very important. Significantly, some researchers have found out that there are general negative effects of eauctions on the collaboration between buyers and suppliers in the short term relationship (Craig R. Carter, and Lutz Kaufmann 2006). More specifically, research has shown that suppliers who participate in a e-auction feel exploited by the process and lose trust in the buyer (Adam J. Fein, 2002). This is especially when e-auctions are used to support short-term relationships. Suppliers 19 | P a g e

E-Auctions – A Major Trend in Supply Chain feel a great deal of competitive pressure due to a larger pool of participants, resulting in a forced offer with a lower price to the buyers. Although the market efficiency was increased, the buyer supplier relationship was decreased dramatically in this case. On the other hand, it was shown that when e-auctions are used to support long-term relationships, both market efficiency and long-term relationships are improved drastically. This is primarily due to the fact that both price factors as well as non priced factors such as product quality, delivery time, and service level, have to be taken into consideration when making repeated souring decisions47. However, if the needs of buyers can only be fulfilled by a small number of suppliers, then e-auctions should not be applied here. Essentially, the transaction price will not be reduced enough to generate significant savings for the buyer if only limited competition exists48.

10.2 Sustainability – Buyers Perspective Some research has appeared to confirm that buyers may be shifting away from a total cost approach toward a price-only-based approach thus not adequately considering non priced factors in their selection decision (Carbone 2003). Significantly, buyers in e-auctions need to think beyond simply the quoted price in order to make their strategic souring decisions more effectively. Price may be an important factor in the decision, but other elements, such as added services, must also be taken into consideration when making souring decisions. Accordingly, a buyer’s utility is determined by both price and supplier quality49. Ignoring these non priced factors in e-auctions will eventually lead to higher overall costs to buyers. For instance, some suppliers who win the e-auction will cut out normal services, use less quality materials, or extend deadline just to make it possible for them to place a more competitive initial bid even though the final bill may end up being much higher50.

20 | P a g e

E-Auctions – A Major Trend in Supply Chain In addition, Carbone (2003) stated that the success of an E-auction primarily depends on whether it is conducted under the right conditions. More specifically, goods and services that can only be provided by a limited number of suppliers will not be effective with e-auctions since the suppliers, not the buyers, will have all of the power in the situation and can actually drive the price up instead of down51. Buyers need to be aware of this and also need to realize that treating suppliers with respect now can secure them a trustworthy supplier in the future52.

10.3 Sustainability – Suppliers Perspective Besides being very competitive in auction price, suppliers in e-auctions will also have to be very proactive in offering value added services to buyers in order to sustain their future businesses. Accordingly, Carter believes that "E-auctions are widely perceived ... as a divertive purchasing tool designed principally to drive down supply prices without adequate consideration given to other important measures ...." Typically, on time delivery, extra warranty, better quality of product, and flexibility could all be part of these important measures.

11.0 TRENDS AND FUTURE OF E-AUCTIONS In spite of its limitations and challenges as a sourcing tool, e-auctions have not only been utilized for the past decade, it has also shown significant growth in its market penetration. According to market research, by 2003, 42% of large buyers and 14% of small buyers were already utilizing e-auctions.53 As shown in the figure below, this penetration has been achieved through consistent growth since 2000. At the same time, only 5%, on average, of buyers total spending was through the use of this mechanism.54 By 2004 over $70 billion worth of goods and services have been involved in e-auction transactions.55 The momentum of this sourcing totals growth in market utilization has continued over the following years.

21 | P a g e

E-Auctions – A Major Trend in Supply Chain

Sources: Fein A., Online Auctions are here to stay, Modern Distribution Management, http://www.mdm.com/stories/fein3401.html

With the growing application of e-auctions across various industries, there has become increasing scrutiny concerning its various limitations and effects upon the procurement process. The key issues that are being addressed today, and must continue to be improved upon in the future, are: (1) buyer-supplier relationships, (2) e-auctions dominant focus upon lowest price and (3) business sustainability. How these issues are addressed will determine the ultimate market utilization level of the tool and its ability to handle specialty and customized items in additional to the more common usage on commodity items. Since e-auction is merely a tool for the procurement process, the drawbacks in the methodology are being quickly compensated for, through rapid advancements in the technology supporting the application. The advent of increased access to and capacity of broadband internet services are extending the reach and speed of the e-auction services while providing greater capacity for data transfers. As a result, software applications are becoming more sophisticated by allowing buyers and suppliers to apply additional detail to the bidding process. Affectively, participants will be able to optimize the process by implementing scenarios to tailor bids towards a variety of market conditions.56 Ultimately the future enhancements to tool will enable increased negotiation capabilities within e-auctions and move the process beyond price focus and 22 | P a g e

E-Auctions – A Major Trend in Supply Chain towards quality, relationships, and other value added features. As product margins continue to shrink due to cost based competition, the e-auction improvements in future will allow suppliers to leverage their existing relationships and core competencies in order to differentiate their offer in the auction. Furthermore, increasing scrutiny is also being placed upon participants within the e-auction process to ensure the qualification of bidders and the ethical behavior of the buyer.57 The intention is to improve the reliability and reputation of the process in the future. For example, some large organizations have taken to rating suppliers based upon past performance and utilize the ratings to determine which suppliers to invite to particular auctions.58 Additionally, traditional e-auctions have been based off of the ‘English reverse auction’. Current trends suggest that other auction forms will gain popularity in the future as a means to differentiate the procurement process while also creating more affective means for sourcing the required combination of product specifications and price.59 (For details on different types of e-auction, see Appendix 2) By continuously developing the methodology in the future, participants will be able to successfully counter the impact the limitations of e-auctions by developing the processes to operate beyond them. However, if developments towards enhancing relationships and ethical behavior fail, the e-auctions’ growth appears to be limited to undifferentiated suppliers with bulk commoditized items and ever tightening profit margins.60

12.0 CONCLUSION Through an extensive literature review, an in-depth analysis has highlighted the potential impact of e-auctions upon supply chain systems and its limitations, trends and future expectations have been presented.

23 | P a g e

E-Auctions – A Major Trend in Supply Chain Enabled by advancements in internet technology and the influence of e-business on the supply chain, e-auctions have formulated a significant role within e-commerce, e-procurement and e-collaboration. Reduced costs, negotiation processing time and an enlarge pool of potential suppliers are just some of the benefits being realized by buyers utilizing this methodology. On the other hand, suppliers gain from access to new markets, competitor pricing transparency and improved discipline in the tendering process. Unfortunately there are significant limitations still plaguing the sourcing tool, most significantly the potential for fraudulent behavior, reduction in product quality, failure to properly meet the product specifications and the dematerializing of buyer/ supplier relationships. Additionally, many academic and peer reviewed sources disagree on the true impact upon the buyer/supplier relationships and the sustainability of the mechanism. Since its inception in supply chain management over a decade ago, e-auctions have been showing continuous and significant growth in utilization. While Reverse English auctions are still the norm, other forms of auctions are providing and are expected to continue to provide significant growth for the methodology. In additional, e-auctions are evolving through considerable development in the technology and its ability to formulate and value relationships. Furthermore, e-auctions are moving away from the purchasing decisions being based purely on cost based factors. Participants are being enabled with the option of customizing bids for specific market conditions and place value on more qualitative factors like reputation. Overall, e-auction has proven itself to be a dynamic procurement tool with a valid role and future within specific parts of supply chain management.

24 | P a g e

E-Auctions – A Major Trend in Supply Chain APPENDIX 1 – E-AUCTION PROCESS The preparations for an e-auction are quite similar to traditional way of awarding agreements. The organization examines the marketplace and, if required, a Request for Information (RFI) is sent to selected suppliers. After the e-auctions are examined, a final specification for tender process is created. Traditionally, Requests for Tenders (RFT’s) are sent to potential suppliers and sealed tenders are invited over a specified period. After the tender submission period, the tenders are opened and examined for another period, usually for approximately 4 weeks, and then awarded. The e-auction process differs from the traditional process, where instead of calling for tenders, suppliers are invited to the e-auction event in an online sphere. Prior to the e-auction event, bidders are pre-qualified not only in their capacity to supply but, if applicable, their ability to conform to the company’s operations and controls management systems. With the current CSR corporate agenda, suppliers are also chosen based on how socially responsible their organizations are within the green supply chain management framework. For e-auctions, the company operates within strict operations and management systems because suppliers of operations and sensitive goods and services are audited prior to and during any agreement period. Bidders in the current e-auctions have been pre-existing suppliers that were already prequalified. To prepare bidders for the e-auction, the company sends an instruction document on how to use the e-auction application and details of the specific auction to the bidder. A dummy auction is held if required, with the company staff member hosting the event walking the bidder through the process. The bidders are given a user ID if not already a registered user and a password to log-in to the auction web site. In cases where the specifications are complex, the company may conduct a hybrid process where an RFP takes place and followed up by the eauction. This enables the organization to check that the bidders are fully aware of the

25 | P a g e

E-Auctions – A Major Trend in Supply Chain specifications of the agreement that is up for bidding. In these cases, the bidders are told of the process to take place from the outset. The basic rules of the auction have been the same for all the auctions held so far: bids are accepted through the online event only (not via phone, fax etc) and bids are final and cannot be withdrawn. The auctions have been for entire lot of goods, not goods broken down into parts/components. The feedback to the bidder works on a ranking system where the bids are shown only where they are in relation to other bids and what their own bids have been. The bids are only accepted if they fall with a range as determined in the rules of the auction - the range is set to specific percent or dollar values as part of the configuration of the e-auction prior to the event. Also in the configuration of the e-auction are the vendor penalty factors. These are adjustments to the bid price to give an actual price to the company and allow for such things as exchange rate, switching costs and transportation costs. These penalty factors are disclosed to the bidders prior to the event and affect the bid ranking position. Also the lowest bid is not always awarded with the agreement. One of the terms of the e-auction is that the company reserves the right not to award to the lowest bidder. If the winning bid is invalid, the company will re-hold the e-auction. Following figure gives you the overview of pre-auction, auction and post auction phases of e-auction from buyers’ perspective.

26 | P a g e

E-Auctions – A Major Trend in Supply Chain

(Source: Kumar S. et. al, "Reverse Auctions: How much total supply chain cost savings are there? - A conceptual overview", Journal of Revenue and Pricing Management, May 2007)

27 | P a g e

E-Auctions – A Major Trend in Supply Chain APPENDIX 2 - TYPES OF E-AUCTIONS

61

(Source: Alanbuxton, Does Procurement eAuction Design Matter? (part 1), http://alanbuxton.wordpress.com/2008/03/26/does-procurement-eauction-design-matter-part-1/, Accessed on April 5, 2008)

Reverse English: A reverse English auction is the most common type of procurement auction. In this type of auction the suppliers all open the bidding at a particular price and bid against each other to drive the price down. English auctions are most effective when: 1. They include several suppliers who share a similar cost base. 2. The suppliers are competing to win.

Many researchers stated that an English auction should contain at least four suppliers and those suppliers should share a similar cost base because to win a reverse English auction, a bidder does not need to place his best possible bid. It is sufficient to marginally beat the second best bid.

28 | P a g e

E-Auctions – A Major Trend in Supply Chain Japanese e-Auctions: In a reverse Japanese auction, the buyer states a price and bidders have to accept that price level or withdraw from the auction. Acceptance indicates that the bidder is prepared to supply at the stated price. When one bidder accepts a certain price level, the buyer lowers the price level by a defined amount and again asks bidders to accept or withdraw at that level. This kind of auction continues until there are no more bids placed. Japanese auctions work well in the following environments: 1. When there are significant differences in cost base among bidders. 2. When the contract is of different value to the different bidders.

Japanese auctions also have advantages for suppliers because: 1. Incumbent suppliers cannot shadow the leading bid because they need to accept each

price level as it is offered. 2. Bidders do not have to reveal their market prices to competitors.

Japanese auctions have the following disadvantages: 1. As this format is relatively new so bidders may be uncomfortable with the process. 2. They do not give suppliers any useful competitor information, therefore an over-

confident supplier may choose to hold back during the auction and miss out on being awarded the contract. Japanese auctions are recommended where there are large differences in cost base among suppliers, or where there are three or fewer suppliers. Dutch e-Auctions: In a reverse Dutch auction, the buyer offers a very low price, lower than suppliers would accept. The price gradually increases until a supplier chooses to supply at that price. The buyer has to award the contract to the lowest priced supplier because this is the only price revealed during the auction process. Therefore Dutch auctions are limited to those

29 | P a g e

E-Auctions – A Major Trend in Supply Chain categories where price is genuinely the only differentiating factor among bidders. The key to success in a Dutch auction is a lightning fast connection speed so that the clock can tick relatively quickly and the bidder can stop the clock at exactly the right moment. Even with the increasing speed of internet connections worldwide, the internet is still far too slow to be able to run a true Dutch auction. Therefore most implementations of online reverse Dutch auctions allow suppliers to submit their best price before the event starts. The clock then ticks up and places a “bid” on behalf of the lowest priced supplier. Weighted/ Multi-Attribute eAuctions: Within this auction, non-price factors are rolled up into a merit score (represented relative value) that is then subtracted from the supplier’s price bid to arrive at a comparator score. This comparator score represents the relative value of each supplier’s bid, taking into account price and non-price attributes. Thereafter, suppliers are ranked based on their comparator score. These kinds of auctions can have the following benefits: 1. Post-auction decision making is made simpler, because the differences in non-price

elements of the different suppliers have already been factored in. 2. Potential to allow higher-quality and higher-price suppliers to compete on a level playing

field against competitors in the auction. Sealed Bids (or Vickery - second price sealed)62: A sealed-bid auction allows bidders to submit written bids without knowing the bid of the other people in the auction. The highest bidder wins, but the price paid is the second-highest bid. The auction was created by William Vickrey. This type of auction is strategically similar to an English auction, and gives bidders an incentive to bid their true value.

30 | P a g e

E-Auctions – A Major Trend in Supply Chain

(Source: Alanbuxton, Does Procurement eAuction Design Matter? (part 1), http://alanbuxton.wordpress.com/2008/03/26/does-procurement-eauction-designmatter-part-1/, Accessed on April 5, 2008)

The aforesaid process chart depicts under what circumstances which type of e-auctions would be highly beneficial to an organization.

31 | P a g e

E-Auctions – A Major Trend in Supply Chain

APPENDIX 3 –E-AUCTION EXAMPLE (Sun Microsystems) Sun Microsystems uses e-auction as part of its value added procurement strategy to source for low-end memory circuits and low-capacity disk drives to high-end chips, power supplies and virtually every capacity disk drive the company buys. Nowadays, it is also using e-auctions with its electronics manufacturing services (EMS) providers. The company not only awards printed circuit board assemblies, but also entire systems, including servers and mass storage units, to contract manufacturers through reverse auctions. The company invites past business suppliers to participate in the e-auction as they have already been score-carded (i.e. pre-screened), and their performance in the past is part of the Procuri (e-auction software) auction tool that Sun uses. In 2007, the amount of business Sun Microsystems awarded through e-auction is approximately $2.7 billion. Moreover, Sun Microsystems' total annual spend with suppliers is around $4 billion.

By using e-auctions as a way to source for components, Sun Microsystems harnesses several benefits. First, the major benefit is to reduce cost of materials by creating a competitive environment. When the company initially began to use the e-auction procurement method they immediately realized a 30% reduction in the components’ price. Then, over time, the cost reductions become incremental. The savings represented a huge competitive advantage for Sun Microsystems because it, while spending $4 billion a year, is competing with some companies who spend upwards in the range of $40 billion. 32 | P a g e

E-Auctions – A Major Trend in Supply Chain Sun Microsystems also participates in a ‘high integrity’ auction, which implies that Sun Microsystems do not put anyone in an e-auction that it will not award business to. Most of Sun Microsystems's e-auctions are not winner take all. It is essentially auctioning off pieces of the component pie and not the entire pie. Typically, Sun Microsystems asks three suppliers to bid for its requirements. This process allows healthy competitive environment because each supplier knows that it will get a portion of Sun Microsystems’ business. A supplier can increase or lose share of business with Sun Microsystems through e-auctions. A supplier may have 50% share of business for a certain commodity. If they do well, then they can bring it up to 55% to 60%. If they aren't aggressive then their share may fall to 40% in a quarter. The other suppliers may get a 35% share and the third a 25% share. It is about receiving a portion of the overall pie almost all the time. E-auctions have resulted in Sun Microsystems getting similar prices to what larger OEMs (Original Equipment Manufacturers) receive. Large OEMs traditionally had gotten better prices than Sun Microsystems because their volumes were much larger, but as soon as Sun Microsystems began with e-auctions, the gap shrunk to almost zero. The key highlights of Sun Microsystems’ e-auction: •

E-auctions need to have integrity. In other words, do not include suppliers that have no chance of getting business.

•

E-auctions should not be winner take all. It should be a varying portion of overall pie should be awarded to all suppliers through e-auctions.

•

Only suppliers, who have been previously qualified, and are currently doing business with a company, should be included in e-auctions.

33 | P a g e

E-Auctions – A Major Trend in Supply Chain How Sun classifies its e-auction spend Sun Microsystems classifies its production materials into different levels and uses e-auctions for the following products. Level Commodity 1

Mechanical assemblies (plastic molding, metals works)

2

Electro-mechanical (fans, cables)

3

Electronic enclosures, PCBA backplanes, power supplies

4

Systems integration (active boards, software)

5

Full system manufacturing/design

Source: Sun Microsystems

34 | P a g e

E-Auctions – A Major Trend in Supply Chain References Altman, B. (2003), "Reverse auctions destroy relationships", Manufacturing Engineering, Vol. 130 No.6 Adam J. Fein. "E-Auction Playbook II: E-Auction Participants Strive for Fair, Ethical Events," Purchasing, (131:20), 2002, pp. 35-37. Antonnette, G., Giunipero, L.C., Sawchuk, C. (2002), “E-Purchasing Plus: Transforming Supply Management through Technology”, JGC Enterprises Branko S. et al (Jun 2004), Advances in e-procurement: A focus on the product/buying situation, Management Services Journal Barratt, M. et al (2002). “Exploring business-to-business marketsites”, European Journal of Purchasing & Supply Management, 8(2), 111-122. Buxton A., Does Procurement eAuction Design Matter?, Trading Partners, http://www.tradingpartners.com/usa/download.php?Id=85&Field=File&Force=Y&Stream=N , Accessed on April 4, 2008 Brunelli, 2000. "Online auctions save millions for Quaker Oats and SmithKline Beecham." Purchasing, vol. 128, no. 4, p. S22, 2000. Cassady, R. (1967), “Auctions and Auctioneering”, University of California Press, Berkeley, CA. Chandrashekar A. et al, The Virtual Supply Chain, Managing virtual web organizations in the 21st century: issues and challenges, 2002, Pages 90 – 106 Carter, Craig R., and Lutz Kaufmann (2007), “The Impact of Electronic Reverse Auctions on Supplier Performance: The Mediating Role of Relationship Variables,” Journal of Supply Chain Management, 43(1), pp. 16-26 Carter, C.R. "Ethical Issues in International Buyer-Supplier Relationships: A Dyadic Examination," Journal of Operations Management, (18:2), 2000, pp. 191-208. Carbone, J. "Debate Rages Over Use of E-Auctions for Components," Purchasing, (132:19), 2003, pp. 48-52. Craig R. Carter, and Lutz Kaufmann. “The Impact of Electronic Reverse Auctions on Supplier Performance: The Mediating Role of Relationship Variables” Journal of Supply Chain Management. Tempe: Winter 2007. Vol. 43, Iss. 1; pg. 16, 11 pgs

35 | P a g e

E-Auctions – A Major Trend in Supply Chain Dong, Yan, Carter, Craig, and Dresner, Martin, “JIT Purchasing and Performance: An Exploratory Analysis of Buyer and Supplier Perspectives”, Journal of Operations Management, Vol. 19, 2001, pp. 471-483. Dunn, Lauren, “Does Congress Need to Regulate Online Auctions?” Retrieved April 6, 2008 from: http://pcworld.about.com/news/Jun282001id53983.htm Day, George S.; Fein, Adam J.; Ruppersberger, Gregg (2003): Shakeouts in Digital Markets: Lessons from B2B Exchanges, in: California Management Review, 45(2), 2003, pp: 131-150. Emiliani, M. L. and Stec, D. J. (2005). “Wood Pallet Suppliers’ reaction to online reverse auctions” Emiliani, M.L. (2006), “Executive Decision Making Traps and B2B online reverse auctions”, Supply Chain Management. Fein, Adam J. (2008), “Online Auctions Are Here to Stay”, Modern Distribution Management. Retrieved on April 3, 2008 from: http://www.mdm.com/stories/fein3401.html Gattiker, T.F., X. Huang and J.L. Schwarz. "Why do Sellers Dislike Internet Reverse Auctions?: Some Experimental Results," Proceedings of the 16th Annual North American Research Symposium, 2005, pp. 183-204. Gattiker et al., 2005, Why do sellers dislike Internet reverse auctions?: some experimental results, Proceedings of 16th Annual North American research/Teaching Symposium on Purchasing and Supply Chain Management (CAPS/ISM) March 17–19, 2005, Tempe, AR (2005) Gilmore D., The Top 10 Supply Chain Technologies and Strategies for 2007, First Thoughts – Supply Chain Digest, Jan 2007 Hong, Y. and J.L. Hartley. "An Exploration of On-line Reverse Auctions as a Procurement Tool," Proceedings of the 12th Annual North American Research Symposium on Purchasing and Supply Management, 2001, pp. 79-90. Hannon, D. (2004), "Online buying gathers steam one buyer at a time", Purchasing, Accessed on April 4, 2008 Hartley J. et al (May 2004), An Exploration of the Adoption of E-Auctions in Supply Management, EEE Transactions on Engineering Management, Vol. 51, No. 2, Page 153 Hong, Y., Hartley, J.L. (2001), "An exploration of online reverse auctions as a procurement tool", Proceedings of The 12th Annual North American Research Symposium on Purchasing and Supply Management, pp.79-90. How to be successful in e-auctions, Procurement Program, http://www.lcpe.gov.uk/Library/pdf/How%20to%20e%20auctions%20web%20version.pdf 36 | P a g e

E-Auctions – A Major Trend in Supply Chain Jap, S. (2000), "Going, going, gone!", Harvard Business Review, Vol. November/December pp.30. Kwon, I. and T. Sun. "Factors Affecting the Level of Trust and Commitment in Supply Chain Relationships," Journal of Supply Chain Management, (40:2), 2004, pp. 4-14. Lancioni et al, Information systems development within supply chain management, International Journal of Information Management, October 2004, Pages 375-385 Murtaza M. et al (2004), "E-marketplaces and the future of supply chain management: opportunities and challenges", Business Process Management Journal, Vol.10, No. 3 Moser, E. (2002), "E-procurement – reverse auctions and the supplier's perspective", Pharmaceutical Technology, Vol. 2 6 No.5, pp.82-5. Moozakis, Chuck (2001), “Tools Give Managers Purchasing Power – Web Procurement Software Helps Companies Cut Costs, Rate Vendors And Manage Inventories Better”, InternetWeek. Nair, Anand (2005). “Emerging internet-enabled auction mechanisms in supply chain” Supply Chain Management. Prof. Lakats L., Economic Order Quantity, Supply Chain Management and E-Commerce Lecture, Winter 2008 Sehwail, L. et. al, 2005. “Critical Success Factors for E-procurement Online Marketplace”, International Journal of Operations and Service Management, Vol. 1, No. 4, pp. 344-357 Smeltzer, L., Carr, A. (2003), "Electronic reverse auctions: promises, risks, and conditions for success", Industrial Marketing Management, Vol. 32 No.6, pp.481-8. Sashi, C.N., O'Leary, B. (2002), "The role of internet auctions in the expansion of B2B markets", Industrial Marketing Management, Vol. 31 No.2, pp.103-10. Shah, Chiraq (2005), “What’s the future of e-auctions?, European Leaders Network”. Retrieved on April 3, 2008 from: http://www.europeanleaders.net/magazines/european-leaderselp02/articles/11707/ Teich, J., Wallenius, H., Wallenius, J. and Koppius, O. (2004). “Emerging multiple issue eauctions”. European journal of Operational Research. Vol 159. Iss. 1. Page 1. Vickery Auction, http://en.wikipedia.org/wiki/Vickrey_auction, Wikipedia Website, Accessed on April 6, 2008

37 | P a g e

E-Auctions – A Major Trend in Supply Chain Zaccone, Suzanne (2004), “The Yin and Yang of Reverse Auctions and Trust”, Converting Magazine, Vol. 22, Iss. 5, Page 34.

38 | P a g e

E-Auctions – A Major Trend in Supply Chain End Notes

39 | P a g e

1

Teich, J., Wallenius, H., Wallenius, J. and Koppius, O. (2004). “Emerging multiple issue e-auctions”. European journal of Operational Research. Vol 159. Iss. 1. Page 1. 2 Emiliani, M. L. and Stec, D. J. (2005). “Wood Pallet Suppliers’ reaction to online reverse auctions” 3 Emiliani, M.L. (2006), “Executive Decision Making Traps and B2B online reverse auctions”, Supply Chain Management. 4 Hartley J. et al (May 2004), An Exploration of the Adoption of E-Auctions in Supply Management, Eee Transactions on Engineering Management, Vol. 51, No. 2, Page 153 5 Emiliani, M. L. and Stec, D. J. (2005). “Wood Pallet Suppliers’ reaction to online reverse auctions” 6 Emiliani, M.L. (2006), “Executive Decision Making Traps and B2B online reverse auctions”, Supply Chain Management. 7 Ibid. 8 Lancioni et al, Information systems development within supply chain management, International Journal of Information Management, October 2004, Pages 375-385 9 Ibid. 10 Chandrashekar A. et al, The Virtual Supply Chain, Managing virtual web organizations in the 21st century: issues and challenges, 2002, Pages 90 - 106 11 Lancioni et al, Information systems development within supply chain management, International Journal of Information Management, October 2004, Pages 375-385 12 Murtaza M. et al (2004), "E-marketplaces and the future of supply chain management: opportunities and challenges", Business Process Management Journal, Vol.10, No. 3 13 Barratt, M. et al (2002). “Exploring business-to-business marketsites”, European Journal of Purchasing & Supply Management, 8(2), 111-122. 14 Sehwail, L. et. al, 2005. “Critical Success Factors for E-procurement Online Marketplace”, International Journal of Operations and Service Management, Vol. 1, No. 4, pp. 344-357 15 Johnson M. et al (2002), E-business and supply chain management: An overview and framework, Production and Operations Management Journal 16 Ibid. 17 Ibid. 18 Ibid. 19 Buxton A., Does Procurement eAuction Design Matter?, Trading Partners, http://www.tradingpartners.com/usa/download.php?Id=85&Field=File&Force=Y&Stream=N , Accessed on April 4, 2008 20 Ibid. 21 Ibid. 22 Ibid. 23 How to be successful in e-auctions, Procurement Program, http://www.lcpe.gov.uk/Library/pdf/How%20to%20e%20auctions%20web%20version.pdf, Accessed on April 8, 2008 24 Gilmore D., The Top 10 Supply Chain Technologies and Strategies for 2007, First Thoughts – Supply Chain Digest, Jan 2007 25 Branko S. et al (Jun 2004), Advances in e-procurement: A focus on the product/buying situation, Management Services Journal 26 Hartley J. et al (May 2004), An Exploration of the Adoption of E-Auctions in Supply Management, Eee Transactions on Engineering Management, Vol. 51, No. 2, Page 153 27 Moser, E. (2002), "E-procurement – reverse auctions and the supplier's perspective", Pharmaceutical Technology, Vol. 26 No.5, pp.82-5. 28 Hannon, D. (2004), "Online buying gathers steam one buyer at a time", Purchasing, Accessed on April 4, 2008 29 Brunelli, 2000. "Online auctions save millions for Quaker Oats and SmithKline Beecham." Purchasing, vol. 128, no. 4, p. S22, 2000. 30 Prof. Lakats L., Economic Order Quantity, Supply Chain Management and E-Commerce Lecture, Winter 2008 31 Hartley J. et al (May 2004), An Exploration of the Adoption of E-Auctions in Supply Management, Eee Transactions on Engineering Management, Vol. 51, No. 2, Page 153 32 Dong, Yan, Carter, Craig, and Dresner, Martin, “JIT Purchasing and Performance: An Exploratory Analysis of Buyer and Supplier Perspectives”, Journal of Operations Management, Vol. 19, 2001, pp. 471-483. 33 Sashi, C.N., O'Leary, B. (2002), "The role of internet auctions in the expansion of B2B markets", Industrial Marketing Management, Vol. 31 No.2, pp.103-10. 34 Hartley J. et al (May 2004), An Exploration of the Adoption of E-Auctions in Supply Management, EEE Transactions on Engineering Management, Vol. 51, No. 2, Page 153 35 Jap, S. (2000), "Going, going, gone!", Harvard Business Review, Vol. November/December pp.30.

36

Smeltzer, L., Carr, A. (2003), "Electronic reverse auctions: promises, risks, and conditions for success", Industrial Marketing Management, Vol. 32 No.6, pp.481-8. 37 Ibid. 38 Sehwail, L. et. al, 2005. “Critical Success Factors for E-procurement Online Marketplace”, International Journal of Operations and Service Management, Vol. 1, No. 4, pp. 344-357 39 Jap, S. (2000), "Going, going, gone!", Harvard Business Review, Vol. November/December pp.30. 40 Emiliani, M., Stec, D. (2001), "Online reverse auction purchasing contracts", Supply Chain Management: An International Journal, Vol. 6 No.3, pp.101-5. 41 Altman, B. (2003), "Reverse auctions destroy relationships", Manufacturing Engineering, Vol. 130 No.6 42 Teich J. et al (1999), Multiple-issue auction and market algorithms for the world wide web, Decision Support System, Vol 26 Issue 1, July 1999, Pages 49-66 43 Ibid. 44 Smeltzer, L., Carr, A. (2003), "Electronic reverse auctions: promises, risks, and conditions for success", Industrial Marketing Management, Vol. 32 No.6, pp.481-8. 45 Cassady, R. (1967), Auctions and Auctioneering, University of California Press, Berkeley, CA. 46 Smeltzer, L., Carr, A. (2003), "Electronic reverse auctions: promises, risks, and conditions for success", Industrial Marketing Management, Vol. 32 No.6, pp.481-8. 47 Gattiker et al., 2005, Why do sellers dislike Internet reverse auctions?: some experimental results, Proceedings of 16th Annual North American research/Teaching Symposium on Purchasing and Supply Chain Management (CAPS/ISM) March 17–19, 2005, Tempe, AR (2005). 48

Procurement Trends, http://www.epiqtech.com/e-procurement-Trends.htm, EPIQ, Accessed on April 8, 2008 Carter, C.R. (2000), "Ethical issues in international buyer-supplier relationships: a dyadic examination", Journal of Operations Management, Vol. 18 No.2, pp.191-208. 50 Fein, Adam J. (2008), Online Auctions Are Here to Stay, Modern Distribution Management. Retrieved on April 3, 2008 from: http://www.mdm.com/stories/fein3401.html 51 Day, George S.; Fein, Adam J.; Ruppersberger, Gregg (2003): Shakeouts in Digital Markets: Lessons from B2B Exchanges, in: California Management Review, 45(2), 2003, pp: 131-150. 52 Hong, Y., Hartley, J.L. (2001), "An exploration of online reverse auctions as a procurement tool", Proceedings of The 12th Annual North American Research Symposium on Purchasing and Supply Management, pp.79-90. 53 Ibid. 54 Ibid. 55 Zaccone, Suzanne (2004), The Tin and Tang of Reverse Auctions and Trust, Converting Magazine, Vol. 22, Iss. 5, Page 34. 56 Shah, Chiraq (2005), What’s the future of e-auctions?, European Leaders Network. Retrieved on April 3, 2008 from: http://www.europeanleaders.net/magazines/european-leaders-elp02/articles/11707/ 57 Dunn, Lauren, Does Congress Need to Regulate Online Auctions? Retrieved April 6, 2008 from: http://pcworld.about.com/news/Jun282001id53983.htm 58 Moozakis, Chuck (2001), Tools Give Managers Purchasing Power – Web Procurement Software Helps Companies Cut Costs, Rate Vendors And Manage Inventories Better, InternetWeek. 59 Shah, Chiraq (2005), What’s the future of e-auctions?, European Leaders Network. Retrieved on April 3, 2008 from: http://www.europeanleaders.net/magazines/european-leaders-elp02/articles/11707/ 60 Fein, Adam J. (2008), Online Auctions Are Here to Stay, Modern Distribution Management. Retrieved on April 3, 2008 from: http://www.mdm.com/stories/fein3401.html 61 Buxton A., Does Procurement eAuction Design Matter?, Trading Partners, http://www.tradingpartners.com/usa/download.php?Id=85&Field=File&Force=Y&Stream=N , Accessed on April 4, 2008 62 Vickery Auction, http://en.wikipedia.org/wiki/Vickrey_auction, Wikipedia Website, Accessed on April 6, 2008 49