Online auction puts quality behind price
First a disclaimer. I wish I had thought of this idea. It is apparently easy to sell, evidenced by the rapid growth of FreeMarkets Online [an online marketplace for custom industrial products and intermediate components based in Pittsburgh]. It's easy to see why FreeMarkets' customers would like the idea: They obtain the lowest prices without even having to do much work. In some cases, they may even be able to reduce the head count in a purchasing department.
But I have trouble seeing what a supplier will have to like about the system. The fact that they can see, real-time, what quote actually gets the job? That a supplier without a long-term relationship gets the job? I doubt it. If I remember how FreeMarkets software works, each supplier is anonymous to the other suppliers, so the losers don't even get to laugh at the big loser: the supplier who won the bid.
Another disclaimer. I have never participated in a FreeMarkets auction, and the information I have is 2 years old. But here is our experience with FreeMarkets. After months of constant visits by one of our sales people to the purchasing department of an electronics firm, we were put on their bid list. A month later we were informed by the purchasing department that they wanted us to look at a project, and that we should contact FreeMarkets.
FreeMarkets sent us the bid package of prints, specifications, and FreeMarkets' contract. The contract was unbelievable. It required that we purchase their software to participate in the ``auction,'' that we give them a 10 percent commission on the job if we were successful, plus a 5 percent commission on any future business we obtained from this customer.
For those commissions, FreeMarkets would run an auction. Nothing else. If you are not laughing yet, you will be soon, because it gets better.
The business we were being asked to quote on was pre-existing business with customer-owned tooling. The electronics company had already set up a reserve bid that was 20 percent below the existing prices. Meaning, at a minimum, the successful bidder would have to come in 20 percent below the existing prices, plus pay FreeMarkets a 10 percent commission, plus still have all of the customer support costs.
If the part was 50 percent raw materials, then the winner would have only 40 percent of the manufacturing dollars available to them compared to the previous supplier. We declined to participate in this questionable opportunity.
Our experience may be different from others. The auction idea may work with commodity nuts and bolts. But you know what? The real free market has already been at work for those items.
In the technical world of custom molding, I have trouble seeing how a customer's best interests are served by using FreeMarkets. Quality is not cheap, and never has been. The lowest price does not guarantee poor quality. But a price that is so low that it does not allow the supplier to survive, grow, and keep up with technology will eventually force the quality issue.
Relationships between customer and supplier are important. We often get business from our customers because they trust us to do the best and to be competitive in price. They rely on our expertise. FreeMarkets puts all of these on hold and leaves the sole drive as price. That is a mistake.
Dana Molded Products Inc.
Arlington Heights, Ill.
Recycle-or-die belief not based in reality
W.J. Tomasic's Sept. 21 letter bemoans the condition of post-consumer and post-industrial bottle recycling and blames it on ``the Asian monetary crisis'' and ``severe declines in virgin resin pricing.''
He then takes a gratuitous swipe at the APC with his statement that these things have ``combined for major recycling percentage reductions far in excess of the imagination of the American Plastics Council.''
The problem, if there is one, is not the imagination of the APC, whose members have poured hundreds of millions of dollars down the recycling rathole to support consumption levels with relatively insufficient demand based on the good sense of sound markets. The problem rests with those with a recycle-or-die philosophy, who hope against reality that markets will do as hoped for; rather than independently of hope, as markets and superior technologies always do.
We've heard Tomasic's closing thought before: ``If things aren't bad enough already, further decline is possible, and there is definite evidence that there will be no improvement in the foreseeable future.''
Paper grocery bag manufacturers bewailed the same inevitability for years, as long as they and their environmental cronies could get away with bashing plastic bags. But finally consumers got it: Plastic grocery bags ain't so bad. And grocery stores got it better: Plastic bags are best.
What say, recycling? What's good, what's better, what's best?
George A. Makrauer
ComAd Management Group Inc.
Treasure Island, Fla.