Business-to-Business Reverse Auctions

In 2001, glass and building materials producer Owens Corning held more than 200 reverse auctions for a variety of items including chemicals (direct materials), conveyors (fixed assets), and pipe fittings (MRO). Owens Corning even held a reverse auction to buy bottled water. Asking its suppliers to bid has reduced the cost of those items by an average of 10 percent. Because Owens Corning buys billions of dollars worth of materials, fixed assets, and MRO items each year, the potential for cost savings is significant. Both the U.S. Navy and the federal government’s General Services Administration are experimenting with reverse auctions to acquire a small part of the billions of dollars worth of materials and supplies they purchase each year. Companies that use reverse auctions include Agilent, BankOne, Bechtel, Boeing, Raytheon, and Sony. Not all companies are enthusiastic about reverse auctions. Some purchasing executives argue that reverse auctions cause suppliers to compete on price alone, which can lead suppliers to cut corners on quality or miss scheduled delivery dates. Others argue that reverse auctions can be useful for nonstrategic commodity items with established quality standards.