When home fashions retailer Anna’s Linens began using reverse auctions in 2008, the goal was to save $50,000 a year on purchasing blankets. The company ended up saving a whopping $250,000 instead. Dozens of auctions later, the Costa Mesa, Calif.-based company has saved over $6 million by getting multiple bids on everything from printing to armored car service —along with textiles.
Getting access to more vendors and pinpointing real prices are the pay-offs, says Alan Gladstone, CEO and founder of Anna’s Linens, which has nearly 300 stores in the U.S. Bids come in as far away as Pakistan, India and China.
Hefty price savings is the main driver behind reverse auctions. Projects are auctioned off to a pool of suppliers — six to ten in the case of Anna’s Linens — who compete for a company's business within a small window of time. Bids get increasingly lower as the bidding progresses. Week-long negotiations and discussions are distilled into minutes.
Call it the Wal-Martization of the supply chain process.
Hungry for cost savings, more companies are turning to reverse auctions. Gartner senior procurement analyst Deborah Wilson figures that up to 50,000 reverse auctions were held in the year ending October 31. That’s a 10 percent increase over the year before. Companies are typically saving 10 to 20 percent by using reverse auctions for their purchasing, she says.
Retailers and grocery industries, where there’s more price pressure, are already heavy reverse auction users.
“They can’t afford to be relationship oriented,” Wilson says.
The auctions are transparent, held on an online platform where bidders can see others bids —driving prices lower.
“It’s a good way to get a handle on pricing ranges,” says Craig Agranoff, a Boca Raton, Florida-based business consultant. “You can go back to suppliers and say: ‘Why aren’t you charging this.’ It levels the playing field.”
