Online Auctions—Who Wins?
Online pallet auctions exist for one reason—to lower the price.
By Ed Brindley
Date Posted: 2/1/2002
Back in May 2000, I wrote my letter on the new pallet auctions being held by FreeMarkets. I did not like them then; I like them even less now. In fact, experience just confirms what I once feared.
Recently, the Pallet Board has carried numerous comments about the pallet auction held for Dal-Tile. Some of my observations here are inspired by those postings.
The argument that people who complain about auctions are just whiners is poor analysis. Complaining in itself does not mean the complainer cannot compete. Are the complaints justified? When it comes to online pallet auctions they are.
Online pallet auctions exist for one reason—to lower the price. Why would a major pallet buyer not already be getting a fair price from a qualified pallet supplier? The only reason is that the buyer is either incompetent or doing a poor job. Qualified suppliers are easily found by any buyer who does his homework. Supervising a company*s delivery process for quality control can be difficult, but substituting unfair bidding conditions to replace poor management practices hardly makes any sense.
Some Pallet Board posters claimed that specifications were jeopardized by some low bidders. How do they know? Simple! Any experienced pallet supplier knows when a price is totally unrealistic. Every once in a while unique circumstances can lower costs, but prices that are drastically below others have an odor. This is not rocket science.
Specs that come out of a tattered file may not reflect the actual pallet now being delivered. The current system probably evolved over a long period of time. The intrinsic competitive nature of the market has typically worked to reduce pallet prices to very competitive levels, particularly for large orders. The line item for pallets is usually large enough that it has been battered around for years. The fat was squeezed out long ago. If not, then a company*s purchasing function was either incompetent or fraudulent.
Pallet auctions can attract all kinds of suppliers. The potential exists that a low bidder may not provide the service and dependability needed. There is no doubt that the lowest bid price will be under the pallet price currently being paid. What really matters, however, is what gets delivered and how the supplier does the job. If a less stringent pallet specification will work well for a customer, then the spec needs to reflect this. Using an artificially low price or a price on an unsatisfactory pallet or one from a supplier that cannot perform is not a good management practice. You are not buying toilet tissue where the worst thing that can happen is for people to have to adjust to raw behinds. Pallets are useful devices for transporting products safely and efficiently. Pallets protect the valuable products being shipped. Unfortunately, most purchasing agents are graded on their ability to lower the initial price. Total system cost remains secondary in importance. This is fuzzy logic.
I would never suggest that a customer should overpay for pallets, but he should pay enough to get what he needs from a supplier that can perform. Horror stories after pallet auctions are common place. Frequently local operations people report being unhappy. It is common for auction results to be altered.
Online bidding may have its place, just not in the pallet business. If a company is already getting the right pallet at a fair, competitive price, what is to be gained by an auction? Very little other than headaches and unhappy experiences by everybody involved.
The auction Internet models used today are less than fair for industrial goods products. The poor results often experienced are perfect examples of what happens when an auction replaces competent management practices in an already competitive market. We are not bidding on baseball cards. Pallets are used to ship and protect the goods manufactured by the bidders—the very reasons for their existence. Quality suppliers should be able to sharpen bidding pencils, but the online bidding process simply does not make sense for the consistent quality and service relationship needed.
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