Reverse auctions are becoming more commonplace in the packaging industry, but many in the sector - including customers that still insist on using auctions - are not unanimous in their praise for the procedure.
Many processors already have expressed dismay at the growing use of reverse auctions, where bids for a customer's project are made over a Web site in a depersonalized format.
Online bidding raises some issues, according to John Powers, executive vice president of sales and marketing for film extruder AEP Industries Inc. in South Hackensack, N.J. Those include driving out profit margins on some jobs, security concerns and awarding projects to suppliers that cannot fulfill contracts. Plus, the time involved by a processor to prepare for an auction does not always equate with success, he said.
``We were the low bidder on one job from a company that had used another supplier for years,'' Powers said. ``After we won the bid, we never got a phone call back from them. Presumably, they went back to their previous supplier.''
But processors might have new allies in their complaints against reverse auctions. Some customers that already use such auctions are starting to question their value, too.
During two end-user panel discussions March 26 at Packaging Strategies in Orlando, large companies spoke of the double-edged sword of online bidding. Many of those companies use outside dot-com firms, such as Pittsburgh-based FreeMarkets Inc., or internal software to conduct reverse auctions.
In theory, e-bids help companies find processors faster, better and cheaper, said Edward Lerner, manager of research and development, package and process development for Billerica, Mass.-based Welch Foods Inc.
But in reality, reverse auctions become slower and more expensive when all costs are included in the process, according to Lerner. The work involved in qualifying suppliers ahead of time and identifying the right bidders can be painstaking, he said.
``We only use e-commerce when it makes sense,'' Lerner said. ``You want reverse auctions to move in speed like the Starship Enterprise in Warp Factor A. But a lot of times, online auctions go nowhere. They have a mixed record of success in our industry.''
Sometimes winning bidders do not have the ability to deliver what a company's design and engineering groups require, said Jim Scott, director of package engineering with Eastman Kodak Co. of Rochester, N.Y.
Kodak uses online bidding for a majority of its outside products, Scott said. But the winning, low-cost supplier can put Kodak's engineers at odds with its purchasing group, he said. The costs of the finished project can end up rising, he said.
``The auctions have the ability to drive costs out of our business,'' Scott said. ``But there are times when we've had to start a project again from ground zero after the business is moved from Supplier A to Supplier B. We've found the supplier doesn't do something we need.''
Some companies are couching the need to bid jobs at low costs with that of finding long-term suppliers to support their business, said Paige Giannetti, vice president of packaging for Kraft Foods Inc. of Northfield, Ill.
Kraft uses e-bidding on many occasions, Giannetti said. But it looks more closely at processors that are willing to form collaborative partnerships with Kraft, she said.
The aim is to gain ``gold standard'' contract commitments from those suppliers to share technology, potential applications and process innovations, Giannetti said. Reverse auctions are used selectively to control costs, she said.
And at grocery giant ConAgra Foods Inc. of Omaha, Neb., reverse auctions are used only after a supplier has been approved by the company, said John Kaiser, director of packaging and sourcing. It is one tool in the company's purchasing toolbox to manage costs, Kaiser said.
Even then, reverse auctions do not always work as envisioned, he said.
``You have to be able to neutralize all aspects of business procedures and level the playing field before an auction,'' Kaiser said. ``It is very, very difficult to do.''
But even Lerner at Welch, who expressed concern about e-bidding, said the process will continue as long as the system takes out time and lowers prices. But it must be treated as only one sourcing method, he said.
``All bidders have to be bidding on the same thing, and you have to know what you are getting,'' Lerner said. ``Companies that bid must be able to work with us in a competitive manner. You can't afford to be blindsided.''
