Specialty Graphic Imaging Association Digital Printing & Imaging Association
	Executive Summary March 2006

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Reverse Auctions: Lose-Lose Propositions

It’s easy to see why reserve auctions look like a great idea to buyers trying to lower their costs. Putting suppliers in a highly competitive position can drive down margins. But the auctions aren’t delivering the true saving buyers expected, and the long-term effects of reverse auctions can mean serious problems for both buyers and suppliers.

Consider this story, for example: An auction “winner” learned, after the auction, that the buyer needed him to warehouse a retailers signage materials and to deliver the graphics as each store was ready for installation. Warehousing and multiple deliveries presented expenses the printer didn’t include in the bid, because the requirement wasn’t explained clearly pre-auction. This is an all-too-familiar type of scenario that leads to friction between the customer and the print provider.

The reverse auction strategy also results in a print buyer switching from supplier to supplier, a musical chairs scenario that adversely affects overall quality. In hindsight, buyers rarely see the full savings they anticipated, because they repeatedly address the same host of challenges.

And all of this is counterproductive. In today’s specialty graphics marketplace, buyers and suppliers need to work together to maximize effectiveness and address challenges in a marketplace rife with macro-level change.

In the graphics industry, buyers need flexibility — it’s the nature of their projects. Unfortunately, the cut-and-dry nature of reverse auctions can force buyer and supplier into an adversarial position, putting an unhealthy strain on the relationship just when it’s most important to work together.

There are projects were reverse auctions can be effectively used, but these are typically on commoditized goods. Because of the unique nature of the products we create, our specialty graphics community isn’t a strong candidate for commoditization.

Bob Emiliani, director of the Center for Lean Business Management and professor at Central Connecticut State University School of Technology summed it up quite well when he said, “A reversed auction should be recognized for what it is: a technology-assisted form of power-based bargaining whose benefits for buyers are grossly overstated and which, in the long run, compromises the mostly-shared interests of both buyers and sellers.”

We are seeing the beginning of a trend in which buyers of specialty graphics — like buyers in other industries — are starting to move away from reverse auctions. Instead, they’re working closely with their suppliers to manage costs and margins. This approach recognizes the importance of quality and service and creates shared responsibility in the success of the project. As the future unfolds, each participant in the supply chain will be increasingly important to the others. Each will depend on the others maximizing their own core competencies.

Of course, you’ll need to make your own decisions of when, or if, to participate in reverse auctions, but hopefully we will see a continuing decline in this ineffective business practice.