In today’s economic climate, graphic imaging companies are turning to vendors for solutions and innovation implementation, while others are using reverse auctions in an attempt to cut every “expense” corner. The use of reverse auctions poses more problems than solutions when the products and services of graphic producers are considered.
SGIA’s Benchmarking Reports indicate four primary business development drivers, including: short-run capability, customization, quick project completion, and highly coordinated distribution and implementation.
These drivers, which provide flexibility to the customer, do not lend themselves to the rigid requirements of reverse auction acquisition. Customers want solutions when they need them, where they need them, and they don’t want to manage excess inventory.
Consider the Facts
Reverse auctions emphasize price above all other considerations. Intending to level the playing field for vendors, buyers remove subjectivity from the bid specifications. While this approach may work for basic commodities, it doesn’t work well for most of the products and services provided by specialty imagers.
Talking with leading graphic imagers in the community, most have customer relationships in which they work together to minimize costs without compromising value. At the end of the day, the customer is concerned with the overall success of their business. If added value from their vendors results in better sales and improved profitability, that’s what counts.
Additionally, reverse auctions don’t allow for relationship building. In fact, the whole idea of a reverse auction severs the relationship for both the buyer and the vendors. In a business like specialty imaging, with so many variables, eliminating customer relationships is harmful and shortsighted.
Reverse auctions have also been known to cause conflict within the buyer’s own corporate structure. The purchasing department is judged on how much they can save in expenses, while the sales department is judged on profits. Procurement provides a low-cost, inferior product, and sales are adversely affected.
Unfortunately, in a tight global economy, there will be buyers who try to bring vendor support down to the simplest commodity level through reverse auctions. However, there are other buyers who value the expertise and capability of their vendors.
Implement a Strategy
Although reverse auctions are typically not a good fit for specialty imaging projects, the practice continues. Some take part at the request of their customer; others use reverse auctions to fill slow times in their production schedules. If you take part in a reverse auction, you need to have a strategy. Here are a few steps to help make it less painful:
Keep a cool head. The reverse auction process can be stressful, so it’s important to have someone in charge of the bidding who will stay focused on your plan and not be swayed into a bad decision.
Know your limits. Set your minimum price, and walk away if the bidding goes lower.
Know the buyer. What is the buyer trying to achieve? Is the buyer after the lowest possible cost? Are they using the reverse auction to verify the charges of a current supplier, or to get them to lower their price? Is the buyer considering factors in addition to price? All of these will affect your strategy.
Know the competition. Are the bidders the right companies to be providing the products and services described? Do bidders in the auction have a history of quality issues? Are some of the bidders known to low-ball bids?
If it’s a true low-cost bid competition, be prepared for a low-ball bid from one or more of the competitors. It happens. Refer to step two: Know your limits, and know when to walk away. If the buyer is using the reverse auction to verify the charges of a favored supplier, you’ll need to show more value in order to get the business. If the buyer is considering other factors, such as contract terms and service capabilities, you have a better opportunity to show the value of your company and take work from competitors with lower prices.