Business Horizons (2006) 49, 21 — 29

www.elsevier.com/locate/bushor

Implementing reverse e-auctions: A learning

process
Daesik Hur a,*, Janet L. Hartley a, Vincent A. Mabert b

a
Department of Management, College of Business Administration, Bowling Green State University,
Bowling Green, OH 43403, USA
b
Operations and Decision Technologies, Kelley School of Business, Indiana University, Bloomington,
IN 47405, USA

KEYWORDS Abstract Reverse e-auctions, which enable suppliers to compete on-line in real-
Supply management; time, are changing the way organizations select their suppliers. We explore how
Reverse e-auctions; five large firms in different industries learned to use e-auctions, and how e-
Sourcing; auctions were integrated into their purchasing processes. To successfully imple-
Organizational ment e-auctions, organizations should: (1) build e-auction competencies; (2)
learning organize for knowledge management; (3) create a holistic sourcing process; (4)
focus on the total cost of ownership; and (5) experiment with e-auction designs.
Key observations are drawn from the case studies, and implications for supply
managers are presented.
D 2005 Kelley School of Business, Indiana University. All rights reserved.

1. Reverse e-auctions: Strategic tool or
passing fad?
When first introduced in the 1990s, reverse e-
auctions were expected to dramatically change
the way companies select their suppliers. Re-
verse e-auctions are similar to traditional com-
petitive bidding, but with a twist: A buyer
requests bids from multiple suppliers, but in-
stead of submitting written bids, suppliers com-
pete on-line, in real-time. Suppliers typically
* Corresponding author.
E-mail addresses: dhur@bgnet.bgsu.edu (D. Hur),
jhartle@cba.bgsu.edu (J.L. Hartley),
mabert@indiana.edu (V.A. Mabert).
submit multiple bids sequentially, after observing
competitors’ bids. The term breverseQ empha-
sizes that competition among suppliers typically
drives prices down, as opposed to how prices
are driven upward by competitive bidding in
forward e-auctions such as those featured on E-
bay. As reverse e-auctions (hereafter referred to
simply as be-auctionsQ) are capable of greatly
reducing prices, experts predicted they would
eventually replace traditional competitive bid-
ding altogether. Although e-auctions have not
lived up to initial projections (Hannon, 2004;
Institute for Supply Management., 2003), many
supply managers view them as an important and
effective tool when used strategically (Hannon,
2004).

0007-6813/$ - see front matter D 2005 Kelley School of Business, Indiana University. All rights reserved.
doi:10.1016/j.bushor.2005.05.001
22
This paper explores how e-auctions were
adapted and used in the supply management
organizations of five large firms in different
industries (see Box 1). While studies have explored
the reasons for and barriers to e-auction adoption
(Jap, 2002; Mabert & Skeels, 2002; Carter et al.,
2004; Hartley, Lane, & Hong, 2004), our goal is to
illustrate how these five firms succeeded. Specif-
ically, we explore how supply managers learned
about e-auctions, shared this knowledge within
their organizations, and integrated this tool into
their purchasing processes.
Table 1 provides summary profiles of the five
firms, and following text sections discuss impor-
Box 1
How the case studies were conducted
The targeted firms for the case studies were
identified from industries that reported using
e-auctions for supply management (CAPS
Research, 2003), trade articles, and profes-
sional conferences. A total of twelve firms
were initially identified as having implemen-
ted e-auctions, and were contacted about
participating in the study. Sourcing managers
within each firm were asked to identify the
supply managers who were directly responsi-
ble for e-auction implementation in their
organizations. Four firms did not participate
because of policies that restrict sharing
internal business practices. Eight firms par-
ticipated in this study, but only data from five
firms are reported here. One firm had just
one year of e-auction experience at the time
of the study, and thus was considered not
experienced enough to include. The other two
firms provided only qualitative data that were
difficult to verify.
Field data were collected primarily with
semi-structured interviews. An interview pro-
tocol was developed and agreed upon by the
authors, and a detailed list of questions was
sent to participants before the interviews.
Most questions were qualitative and open-
ended, but some required quantitative data,
which helped confirm qualitative responses,
as recommended by Eisenhardt (1989). To
further verify the information provided, the
authors asked informants for corporate docu-
ments and archival records wherever possible,
using the method described by Yin (2003). All
interviews were taped and transcribed, tran-
scripts were then analyzed independently by
the authors, and differences were resolved.
D. Hur et al.
tant characteristics in more detail and present
major findings from the five case studies. The
exposition highlights key supply management
practices that influenced successful implementa-
tion of e-auctions at the firms, and outlines
implications for supply managers.
2. Learning in supply management
organizations
In-depth interviews with supply managers respon-
sible for e-sourcing revealed that implementing e-
auctions is an organizational learning process,
with e-auction practices and supply management
organizations co-evolving over time. Learning and
integrating e-auctions into purchasing processes is
a challenge for supply management organizations.
Learning requires them to prioritize goals, educate
staff, establish a seamless technical infrastruc-
ture, and communicate with suppliers. As sug-
gested by Hult, Ketchen, & Nichols (2003),
learning within a firm’s supply management orga-
nization can create a sustainable competitive
advantage. The data collected at the five case
study firms indicate that successful e-auction
learning and usage is enabled by five managerial
practices, as illustrated in Fig. 1. These benablingQ
practices are:
(1) Build e-auction competencies;
(2) Organize for knowledge management;
(3) Create a holistic sourcing process;
(4) Focus on total cost of ownership philosophy;
and
(5) Experiment with e-auction designs.
The following sections describe each of these
critical enabling practices.
2.1. Build e-auction competencies: Assess
the costs and benefits of third-party services
Should supply management organizations develop
internal e-auction capabilities or should e-auction
processes be outsourced? All five case study firms
initially used third-party service providers to
explore and gain experience with the e-auction
process. However, once the decision was made to
adopt and implement e-auctions on a permanent
basis, supply managers had to decide between
continuing to outsource e-auctions and developing
their own internal e-auction competencies. All
five firms studied chose to develop, to varying
degrees, their internal e-auction competencies.
Two factors influenced this decision: third-party
e-auction administration cost and e-auction and
supply market knowledge. Using these two influ-
Implementing reverse e-auctions: A learning process 23

Table 1 Case firm profiles

Firm A Firm B Firm C Firm D Firm E
Industry Electric Computer Building Automotive Industrial
utility equipment materials parts parts
Sales ($M/year) 8300 5600 4800 2000 1900
Purchases ($M/year) 1400 3000 3400 850 945
Direct (%) 71 67 66 76 95
Indirect (%) 29 33 34 24 5
Duration of auction usage (years) 2 3 4 3 4
Cumulative auction volume ($M) 180 275 381 155 170
Cumulative bid events 139 121 344 24 135
Cumulative spend saving (%)a 14 18 14 18 20
Annual auction spend as
percentage of total spend
Present (%) 7 5 3 16 4
In five years (%) 7 23b 5 17 15—20b
Auction process choice
Pilot Full-service Full-service Full-service Full-service Full-service
Implementation Self-service Self-service Self-service Self-service Hybrid—knowledge
Central support Team Yes Yes Yes No No
a
Spend saving is measured by the percent reduction of close-of-auction prices from historical prices.
b
Targeted maximum.

ential factors, the study identified four possible
configurations for e-auction administration, as
illustrated in Fig. 2: Full-service, Self-service,
Hybrid—knowledge, and Hybrid—technical. These
configurations help explain the e-auction admin-
istration process.
In a full-service e-auction, consultants from the
full-service provider act as project managers, re-
sponsible for all aspects of the e-auction process
from start to finish. They consult with supply
managers of the client firm, then plan and execute
e-auctions. The consultants help to select the
materials or services to be auctioned, prepare the
request for quotes, identify potential suppliers, pre-
qualify them, and train them how to bid. The service
providers also own the e-auction software, and
manage all aspects of the on-line bid event. Full-
service providers usually have two fee structures:
buyers pay either a flat fee, or one based on the
dollar volume and/or price reduction identified in
the e-auction. Inexperienced buyers who plan to
hold only a few e-auctions can turn to full-service
providers to administer them (Quadrant I, Full-
service). By observing and working closely with the
consultants, supply managers acquire auction-relat-
ed tacit knowledge and, thus, develop the organi-
zation’s internal competency. All five case firms
began in this quadrant.
As firms gain experience with e-auctions, they
tend to move them in-house (Quadrant III, Self-
service). This is especially true when buyers under-
stand supply market dynamics. As one supply

Build E-auction
Competencies

Experiment with Organize for

E-auction Knowledge
Designs Management

Learning in
Supply
Organization

Focus on Total Create a

Cost of Holistic
Ownership Process

Figure 1 Enabling practices for learning e-auctions.

24 D. Hur et al.

Third-party E-auction Administration Cost

High
Hybrid-Knowledge Self-Service

Pilot
Low Hybrid-Technical

Full Service

Low High
E-auction & Supply Market Knowledge

Figure 2 Evolving e-auction administration.

manager summarized, bWhy pay someone else to do supply organization. Firm E gradually increased
the job that you’re doing every day?Q In self-service self-auctions up to 75% of total bid events at the
auctions, buyers are responsible for conducting all time of the study.
aspects, including market analysis, supplier identi- Finally, if a firm does not have a sufficient
fication, preparation of the request for bids, suppli- auction volume to justify self-service e-auction
er training, and running bidding events. They must investment but supply managers have e-auction
also develop or license e-auction software and train and supply market knowledge, the enterprise will
managers and suppliers how to properly use it. The use a combination approach. The firm can use the
study found that firms often hire internal e-auction third-party service provider for its software and/or
specialists. If many bid events are planned, third- for very specific bid-related tasks, such as training
party provider service fees can justify the costs of suppliers and running the bid event (Quadrant IV,
developing self-service e-auction capabilities. Un- Hybrid—technical). This is often dubbed bbasic
der continuous cost control pressures, buyers with serviceQ by full-service providers. In this case,
large auction volumes are motivated to develop supply managers are responsible for e-auction
internal competencies and hold the auctions them- planning and preparation, such as selecting the
selves. At the time of this study, four of the five firms item or service for auction, analyzing the supply
(Firms A, B, C, and D) were performing self-service market, and preparing the request for quotes.
e-auctions. Since many of the value-added tasks are conducted
When a firm has a relatively large auction by buyers, services fees are less than those of a full-
volume but lacks e-auction skills and market service e-auction. None of the firms in this study
knowledge, they can employ both self-service and were in this quadrant, but our sample was limited
full-service (Quadrant II, Hybrid—knowledge). In to large, experienced firms.
this scenario, third-party full-service providers are In summary, all case study firms started with a
used for large volume, complex, cross-divisional, third-party service provider to acquire e-auction
and first-time sourcing projects. For purchases knowledge and experience. As their internal
previously administered by full-service providers competencies developed, the firms reduced their
and/or when little savings are expected, individual reliance on full-service providers and moved e-
supply managers use self-service e-auction tools. auction processes in-house. Purchase volume at
Of the five firms in this study, only Firm E operated these firms was large enough to justify the self-
in this quadrant. Firm E licensed self-auction service auction investment, and building internal
software from a full-service provider and used both e-auction competencies was regarded as a part of
self- and full-service auctions, with self-service developing the strategic capability of the supply
auctions limited to division-specific, low-value, management function. Aberdeen Group (2002)
and/or repeated purchases. Whenever common expects full-service providers will diversify their
production materials across multiple divisions or services to reflect increasing self-auctions and
foreign suppliers were involved, the full-service support hybrid configurations. While this industry
provider was responsible for all e-auction process- trend increases alternative e-auction services for
es, and worked directly with the corporate-level supply management organizations, it becomes
Implementing reverse e-auctions: A learning process
more important for supply managers to carefully
assess the costs and benefits of these services.
2.2. Organize for knowledge management:
Individuals cannot go it alone
To diffuse e-auctions within organizations, some
firms implementing self-service auctions recog-
nized the need for supporting supply organizational
structures. Most individual supply managers per-
form e-auctions intermittently, as long-term con-
tracts reduce the need for re-bidding and changing
supply market dynamics impact auction timing.
Intermittent e-auction usage limits learning and
reduces efficiency, as individuals forget and must
re-learn the process. To address these issues, some
firms (Firms A, B, and C) formed a centralized staff
that helped capture, retain, and transfer e-auction
knowledge within the organization. The staff
became a central repository and distributor of e-
auction knowledge and skills at these firms.
For example, firms licensed e-auction software
and trained supply managers in all aspects of e-
auctions. At Firm A, one e-sourcing manager
oversaw the process and provided technical assis-
tance as needed. Firms B and C initially transi-
tioned to self-service e-auctions without the aid of
support staff, but later established teams to assist
supply managers with all aspects of e-auctions,
from assessing opportunity to actual execution.
Firm C’s support team acted as a change agent and
internal champion, persuading reluctant supply
managers to try e-auctions and frequently bench-
marking other companies who used them. While
support team members of Firm B were assigned to
each division, those of Firm C divided responsibil-
ities according to geographical regions, in order to
better assist the supply managers.
Unlike Firms A, B, and C, Firms D and E licensed
self-service e-auction software and pushed all
responsibility directly onto individual supply man-
agers. Top management at Firm D tried to motivate
their supply managers by setting challenging e-
auction usage goals and measuring the number
conducted, but did not create a central support
team. One manager noted that he only ran about
one e-auction per year, which necessitated re-
learning the process each time. Already-overbur-
dened buyers in Firm E also complained about a
lack of e-auction support services.
These experiences indicate that organization-
wide learning of e-auctions can be accelerated
when the pertinent experience and knowledge of
supply managers is captured, accumulated, and
shared within the firm. Observations suggest a
central support staff can develop expertise
25
through continued involvement in e-auctions and
transfer this knowledge and these skills to supply
managers as needed. In this way, they both
effectively acquire and disseminate e-auction
knowledge.
2.3. Create a holistic sourcing process: To
realize savings, the bid event is only
the beginning
Completing a successful bid event is not the end of
the sourcing process, especially if a new supplier is
selected. Switching vendors can be time-consum-
ing, costly, and uncertain, and post-bid challenges
can prevent buyers from realizing cost savings in a
timely manner. For example, managers at Firm E
estimated it took, on average, 14 months from the
completion of a bid event to the delivery of parts
from a new supplier. Similarly, the sourcing director
at Firm D reported that over the previous four
years, approximately 50% of e-auction results had
not been implemented. In one case that actually
did progress, production did not even begin until
two years after the bid event.
What factors are capable of hindering a buying
firm’s transition to a new supplier? Things such as
unclear task accountability and differing priorities
between departments often delayed the transition
process. For example, at Firm E, the supply
management department was responsible for the
sourcing process from spend analysis to supplier
selection, but responsibility for the qualification
and transition to a new supplier was not clearly
defined. In this organization, quality control,
production engineering, and operations did not
place a high priority on qualifying new suppliers
relative to their other activities.
In some cases, supply managers found that
previous suppliers subtly changed the design or
production processes of parts without documenting
these alterations in the specifications. Such
changes remained the btribal knowledgeQ of incum-
bent suppliers, and made possible unexpected
quality and productivity problems for new suppli-
ers, which further delayed timely delivery and
reduced actual cost savings.
Finally, a transition to a new supplier may
involve time-consuming tasks if the buying firm
must comply with governmental regulations or
meet customer requirements. In these situations,
supplier qualification/certification, tooling, pilot
production, quality testing, and other rigorous
approval standards may be required. For example,
Firm D’s customers, the automotive assemblers,
must approve any changes in Firm D’s production
suppliers.
26
To cope with these challenges, the e-auction must
be considered as a holistic process that extends from
the first step of selecting the items or services,
through all other steps required to implement and
realize the savings. E-auctions must be a priority
across all involved enterprise functions, not just in
the supply management organization.
2.4. Focus on total cost of ownership:
Integrate e-auctions into your TCO strategy
Over the last decade, the total cost of ownership
(TCO) philosophy has been widely embraced by
supply managers. The firms in our study seem to
be in step with this trend, as well. The TCO
philosophy emphasizes that sourcing decisions
should consider all costs associated with acquisi-
tion, possession, use, and disposition (Ellram &
Siferd, 1998). As e-auctions focus on lowering
purchase prices, they seemingly conflict with the
TCO philosophy; nonetheless, all interviewed
managers claimed to have integrated TCO into
e-auctions. How did they accomplish this? First,
they selected purchases for e-auctions whose
purchase price accounted for the majority of the
total cost of ownership. Second, other significant
TCO elements (transportation, service, warranty,
etc.) were normally included in bid specifications
so that bid prices reflected these elements.
Third, during the pre-bid conference, buyers
informed suppliers that the lowest bidder might
not be selected, unless it minimized total cost of
ownership. Finally, during either the bidding
event or the post-bid analysis, a proxy of the
total cost of ownership was generally computed,
using pre-established conversion formulas. This
proxy provided a useful benchmark that was not
normally communicated to suppliers.
Reported results confirmed that case firms, as
they claimed, did apply a TCO approach to their
e-auctions; lowest bidders did not always win
contracts. Three firms generally awarded contracts
to the lowest bidders (85% to 90% of bid events),
while Firm D selected the lowest bidder approxi-
mately 60% of the time. Lowest bidders that were
not selected were rejected either because the bid
price turned out to be unreasonable or the total
cost of ownership was not the lowest. In terms of
total cost of ownership, a buyer’s switching cost
(i.e., incremental cost associated with changing to
a new supplier) plays an important role. Higher
switching costs due to required adaptations by
procuring firms increase the total cost of owner-
ship of new suppliers, making them unfavorable
alternatives. At the case firms, incumbent suppli-
ers obtained contracts in 50% to 90% of e-auctions.
D. Hur et al.
This observation supports suppliers’ frequent com-
plaints that firms use e-auctions primarily to drive
prices down with their current suppliers.
2.5. Experiment with e-auction designs:
Learn from each event
E-auctions initially appeared to be a standardized
process that could fit generically into any firm.
However, many supply managers quickly realized
they had to adapt the rules, assumptions, and
formats of e-auctions, due to the unique purchasing
requirements, organizational structures, and sup-
ply base characteristics of their companies. These
supply managers gathered detailed information
about both failed and successful bid events,
analyzed the bid parameters and specifications,
and tried to establish robust guidelines regarding
when to use e-auctions and how often to repeat
them.
Supply managers also learned that not all bid
events are successful. According to case firm data,
approximately 30% of planned bid events eventu-
ally failed to occur. Results of the remaining bid
events varied widely, with price reductions ranging
from 0% to 80%. Based upon an analysis of bid
events, factors that were found to influence
success levels included the chosen goods or service
characteristics, a buying firm’s organizational
structure, and supply base rivalry. In order for e-
auctions to be successful, the following conditions
must be met:
(1) Historical data on purchases must be readily
available for analysis;
(2) It must be feasible to combine purchases
across departments or business divisions to
leverage larger volumes;
(3) It must be possible to develop clear and
complete specifications;
(4) Strategic supplier relationships must not be
warranted;
(5) Buyers must not be in existing long-term
contracts; and
(6) Suppliers who are willing to compete must be
available.
In order to cope with the increasingly sophisti-
cated bidding strategies of suppliers and the
changing sourcing environment, supply managers
have begun to explore new auction designs and to
demand new software features capable of maxi-
mizing e-auction benefits. Flexible e-auction
designs include performing multi-lot e-auctions,
changing the type of real-time information visible
to bidders (price feedback versus rank feedback),
Implementing reverse e-auctions: A learning process
using different pricing rules, and enabling multi-
attribute auctions that focus on more than just
price. Furthermore, managers have expressed
greater interest in complete sourcing software
suites that integrate spend analysis, on-line request
for quotes/proposal, e-auction, and contract man-
agement. These combined features allow for easier
capture and analysis of data from beginning to end
of the process.
3. E-auctions: Here to stay
The interviewed supply managers considered their
overall experiences with e-auctions successful,
despite the decline of saving rates over time.
Annual bid events savings ranged 13% to 20%, with
a slight declining trend of 1% to 3% decrease per
year over time. Greatest savings were obtained
during pilot events or the first year of corporate-
wide e-auction implementation. Several factors
contributed to lower savings levels. First, as firms
gained experience with e-auctions, they became
more selective in using them. As such, the total
auction purchase volume grew slowly, reaching
only 3% to 16% of total purchases. Additionally,
the types of items being auctioned changed with
time. Initially, case firms targeted relatively
standard items, but gradually moved to more
complex, harder to specify, smaller dollar volume
items and services, such as health care and legal
services.
Supply managers also found that very few
items are appropriate for frequent re-bidding,
as repeated buys brought about very small
savings. Although early savings from repeated e-
auctions ranged, on average, from 25% to 75% of
previous bid event rates, prices stabilized after
three or four consecutive auctions within a two-
to three-year period. Moreover, frequent repeat
auctions are not viable when switching to a new
supplier requires a substantial amount of time
and resources, or when it takes time to exploit
the learning curve effect. Only two firms (Firms B
and C) conducted repeated e-auctions (which
accounted for less than 20% of total bid events),
and others intentionally avoided repeating e-
auctions for the same purchases.
With experience, supply managers have adjusted
their expectations regarding e-auctions, and antic-
ipate using them for 5% to 25% of total purchases by
2008. Overall savings from e-auctions are expected
to further decline, due to fewer repeat auctions
and anticipated low saving rates of future bid
events. Supply managers invariably agree that
repeated e-auctions of the same commodity or
services will eventually lead to an efficient market
27
price. However, they also suggest significant price
reductions can be attained, if the following market
conditions exist:
(1) New suppliers, in particular, from foreign
countries participate in the bidding;
(2) Suppliers’ costs are reduced, due to raw
material price reductions, new process
changes, and/or product innovations;
(3) Industry-wide excess production capacity or
inventory exists temporarily; and/or
(4) Suppliers focus on revenue generation rather
than profit maximization, such that they are
willing to lower prices below their break-even
levels.
Such gains, however, are expected to be the
exception rather than the norm.
Although savings are expected to decline over
time, supply managers still consider e-auctions a
viable purchasing tool. All of the supply managers
stated their firms will continue to use e-auctions,
as they offer more benefits than just price reduc-
tion. The managers suggest e-auctions save time,
help to reduce the number of suppliers used, and
standardize the sourcing process. E-auctions also
help organizations standardize contract terms and
conditions, which is favorable to buyers in that
suppliers must agree to buyer terms and conditions
in order to participate in the auctions. Finally,
buyers can be assured the obtained price is
competitive, given the set of suppliers.
4. Implications for managers
Our five case studies suggest that experienced e-
auction users have moved beyond the hype and
have embraced e-auctions as part of their normal
purchasing processes. Their experiences provide
insight for those who plan to implement e-
auctions in their own organizations. In this
process, five managerial practices, as outlined
in Table 2, have emerged as enablers for
successful organizational learning. Important
tasks to focus attention upon are:
4.1. Build e-auction competencies
Full-service e-auction providers can aid organiza-
tions in both learning the e-auction process and
building related internal competencies. As full-
service providers have extensive e-auction expe-
rience, they are able to impart their accumulated
expertise to the client. While explicit knowledge
such as supplier information and specification
data can be easily acquired, other elements,
such as practical experience or the tacit knowl-
28 D. Hur et al.

Table 2 Implications for supply managers

Enabling practices
Build e-auction competencies
Organize for knowledge management
Create a holistic sourcing process
Focus on total cost of ownership philosophy
Experiment with e-auction designs
Detailed actions
Utilize third-party service provider and collaborate with the consultants (selected
use based on the process and commodity)
Hire e-auction specialists
Train buyers and commodity managers
Create a central support staff and develop differentiated support plans for
heavy/occasional users
Appoint a high-ranking executive to champion e-auction implementation
Nurture communities of practices to share best practices within the organizations
Create cross-functional sourcing teams that involve engineering, quality control,
and production personnel
The sourcing team leader oversees from sourcing to delivery
Develop detailed guidelines on how to integrate e-auctions into TCO
Communicate buyer’s TCO policy with suppliers
Develop TCO-based cost saving measures
Benchmark e-auction users within and across industries
Investigate failed bid events
Encourage learning by experimentation

edge of consultants, are more difficult to trans-
fer. To facilitate learning, a buying firm should
require consultants to collaborate and assist
supply mangers in administering e-auctions. In
working closely with the consultants, supply
managers can observe the underlying reasons
driving decisions in e-auction processes. How long
must e-auction adopters rely on full-service
providers? This depends upon the existing knowl-
edge base of the firm. For example, if standard-
ized global sourcing practices have long been
established, firms may be capable of quickly
transitioning to self-service e-auctions. If supply
managers require continued learning and assis-
tance, however, a slower transition process is
recommended. Furthermore, firms may acquire
expertise from third-party service providers by
recruiting outside e-auction specialists to train
supply managers in e-auction usage.
4.2. Organize for knowledge management
In order for an entire organization to benefit from
e-auctions, it is critical to establish a team that
champions, supports, and provides education re-
garding them. As supply managers might be resis-
tant to change and shy away from the e-auction
process, a high-ranking manager should initially
lead the task force team. The job of the central
staff is to educate buyers, provide both procedural
and technical support, and to capture and retain
the data related to all e-auctions, such that supply
managers can easily access this information to
prepare for future bid events. Support staff can
quickly gain expertise, as well, since they are
involved in almost all bid events in one manner or
another. Finally, firms should encourage supply
managers to voluntarily share best practices
through communities of practices in an effort to
maximize knowledge sharing.
4.3. Focus on total cost of ownership
philosophy
The price focus of e-auctions inherently creates a
tenuous relationship with the TCO philosophy;
therefore, internal champions need to develop
and promote a shared understanding of TCO in
the context of e-auctions. The critical task is to
convince supply managers that e-auctions can be
integrated into a TCO strategy, and the steps
described in the prior section can be good starting
points toward this end. Moreover, e-auction savings
should be measured and reported based upon TCO,
rather than the close of auction price reductions.
4.4. Create a holistic sourcing process
To ensure a holistic e-auction process and increase
success, a cross-functional sourcing team that
involves engineering, quality control, and produc-
tion personnel should be used. Early involvement of
multiple functions in the e-auction process facil-
itates cross-functional communication, clarifies
accountability, and increases commitment. The
team leader should oversee activities during the
pre-bid, bid event, and post-bid periods.
4.5. Experiment with e-auction designs
Continuous learning and adaptation are stimulated
by benchmarking e-auction users across industries.
Benchmarking helps supply managers identify auc-
tion-friendly items or services, new suppliers to
include in e-auctions, and innovative auction
designs. Because best practices are seldom perfect-
ly transferable across organizations, supply man-
Implementing reverse e-auctions: A learning process
agers need to experiment with e-auctions, analyze
each bid event, and adapt e-auctions over time. It is
also important to examine failed bid events in order
to understand the underlying causes. An iterative
process of benchmarking, experimenting, and ana-
lyzing will increase e-auction potential.
5. Conclusion
Amidst intensified global competition and rapid
technological development, it is imperative that
supply managers continuously learn and adapt to
the changing sourcing environment. This study
reports how supply managers at five companies
learned to use and adapted e-auctions, and how
their organizations changed during implementa-
tion. While the small sample size and case method
approach limits the ability to generalize the
findings, the evidence suggests e-auctions are a
useful procurement tool when an organization
learns its strengths and weakness, and adapts
accordingly.
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