Reversal of Fortune
Online reverse auctions are transactions where one buyer and many sellers auction over the Internet, and bids decrease ('reverse') over time.
Use of reverse auctions is growing. People are purchasing major printing services, under the false assumption that excess costs in the system are taken out, and that the traditional marketplace is inefficient.
The printing industry has seen margins erode significantly over the past few years. Implementing the use of online reverse auctions is, at best, spurring artificial competition.
Our data, compiled from two years of bidding online, indicates 50% of winning bidders are, ultimately, not awarded the work. The end result is a negative impact on the ability of printers to help clients save money the old fashioned way: by partnering to add value and drive costs down through consultation, technology, and cycle-time reduction.
A recent PIA/GATF white paper, titled Strategies for Reverse Auction Survival by J.K. Stoddard, cites statistics regarding the adoption of e-procurement by print-related product line.
It reports adoption rates of 36% for printing, 23% for packaging materials, and 21% for advertising (office supplies were the single highest B2B category, with an adoption rate of 82%).
According to 80% of respondents, printed marketing materials such as flyers, brochures, etc., were the products most frequently purchased via reverse auctions, followed by 72% for low-complexity products, such as one- and two-color printing and business stationery.
Recent data from the Institute for Supply Management (ISM) suggests the use of online B2B auctions was 27% in Q4 2002, up from 19% in Q3 2002. In addition, 68% of respondents said Internet-driven cost savings was one of their top strategic priorities this year.
But despite these trends, are online reverse auctions in the best long-term interest of print buyers and sellers? David Bovet and Joseph Martha sum up prevailing conditions well in Value Nets: Breaking the Supply Chain to Unlock Hidden Profits.