B2B Online Auctions (Part 1)
yimaowang asked:
Auctions offer trading opportunities for the buyers and suppliers and assure prudent execution of contracts. While the business-to-consumer (B2C) has been very popular in the internet world, business-to-business (B2B) online auctions are emerging as a prominent business model. Within B2B online auctions there has been rapid development of reverse auctions. In reverse auctions the buyer hosts the online auction and extends invitations to potential suppliers to bid on announced request for quotation (RFQ). In simple words, a reverse auction has one buying company and many suppliers.
In addition to savings in purchase price and time, reverse auctions enable buyers to react quickly to market fluctuations and also save the time that would have been required for the buying company in identifying and contacting the individual suppliers.
Through reduced search and communication costs, the Internet enables the buyer organization to access a large number of potential suppliers. However, as this large pool includes both efficient and inefficient suppliers, the task of evaluating and developing appropriate strategies for selecting potential suppliers assumes greater importance for the buyer.
Past research on traditional procurement has identified that factors such as quality, delivery reliability, trust, economic performance, and financial stability are important criteria for selecting suppliers. While these factors are equally important in an online auction environment, there are additional supplier characteristics that can have a significant influence on the success of online auctions.
As the buyer in an online reverse auction is seeking the best possible price, the cost reduction capability of the supplier is an important factor. The information technology
(IT) sophistication, the familiarity and the comfort level of the suppliers for conducting business online will have an impact on their participation level in online auctions. A major limitation of traditional auction methods, caused by time and location constraints, is the potential lack of sufficient bidder participation. Electronic auctions reduce these constraints and lead to more participants. Online auctions are open to any supplier with access to the Internet. Once the buying firm opens the gates to more than “prequalified” Suppliers, many more firms can have access to supply products to companies that were previously out of their reach. Online auctions have a larger pool of auction participants with a wider range of qualification status and capabilities. In addition, these suppliers will be obtained through greater research but less “face to face” or direct supplier development cost.
Auctions offer trading opportunities for the buyers and suppliers and assure prudent execution of contracts. While the business-to-consumer (B2C) has been very popular in the internet world, business-to-business (B2B) online auctions are emerging as a prominent business model. Within B2B online auctions there has been rapid development of reverse auctions. In reverse auctions the buyer hosts the online auction and extends invitations to potential suppliers to bid on announced request for quotation (RFQ). In simple words, a reverse auction has one buying company and many suppliers.
In addition to savings in purchase price and time, reverse auctions enable buyers to react quickly to market fluctuations and also save the time that would have been required for the buying company in identifying and contacting the individual suppliers.
Through reduced search and communication costs, the Internet enables the buyer organization to access a large number of potential suppliers. However, as this large pool includes both efficient and inefficient suppliers, the task of evaluating and developing appropriate strategies for selecting potential suppliers assumes greater importance for the buyer.
Past research on traditional procurement has identified that factors such as quality, delivery reliability, trust, economic performance, and financial stability are important criteria for selecting suppliers. While these factors are equally important in an online auction environment, there are additional supplier characteristics that can have a significant influence on the success of online auctions.
As the buyer in an online reverse auction is seeking the best possible price, the cost reduction capability of the supplier is an important factor. The information technology
(IT) sophistication, the familiarity and the comfort level of the suppliers for conducting business online will have an impact on their participation level in online auctions. A major limitation of traditional auction methods, caused by time and location constraints, is the potential lack of sufficient bidder participation. Electronic auctions reduce these constraints and lead to more participants. Online auctions are open to any supplier with access to the Internet. Once the buying firm opens the gates to more than “prequalified” Suppliers, many more firms can have access to supply products to companies that were previously out of their reach. Online auctions have a larger pool of auction participants with a wider range of qualification status and capabilities. In addition, these suppliers will be obtained through greater research but less “face to face” or direct supplier development cost.