13 Million Reasons: Why State Governments Must Make The Move to Reverse Auctions
In a time of unprecedented financial stress, state governments and state agencies should look to reverse auctions as an integral part of their procurement strategies.
Introduction
$13 million dollars. Even in government, where today we speak comfortably in terms of billions and billions of dollars, $13 million dollars is still a LOT of money. Through a recent reverse auction to procure electricity in bulk for state and local agencies, the State of Delaware is projected to save just that amount – $13 million dollars – over the course of the next three years (http://reverseauctionresearch.blogspot.com/2010/04/retail-electricity-agreement-will-save.html). This Delaware reverse auction experience was recently highlighted by Christine Vestal, a staff writer for Stateline (Shaving costs with reverse auctions: http://www.Stateline.org/live/details/story?contentId=479292).
Vestal provides a rather complete case for why all states – in this time of a universal budgetary “worst case scenario” – should look to reverse auctions as a way to better compete their spending and save money in the process to counter the “budget tsunamis” facing state governments. As such, her article should be recommended reading for all in procurement shops and in executive positions in state government to start thinking about how to use the reverse auction tool as part of your agency’s e-procurement and spend management strategies.
However, as a recognized expert and consultant in this area, I must take issue with the three counter-arguments that Vestal tried to make as to why some state government procurement situations are not right for using reverse auctions.
Issue #1: My Procurement Spending is Too Small for Reverse Auctioning
Perhaps because of the success stories in the press about the use reverse auctions by Fortune 500 companies and large governmental buys, many public sector executives – both in the procurement area and at the executive level – believe in the myth that reverse auctions are only suited for multi-million dollar buying actions. Vestal furthers this misconception by stating that: “It (reverse auctioning) only works in a competitive marketplace where states can conduct large-volume purchases by aggregating the needs of many state agencies — as well as counties and cities, when possible.”
That is simply not the case anymore, as increasingly, reverse auctions can be employed effectively on small buys. Take for example the case of FedBid, a leading provider of reverse auction services to agencies across the U.S. federal government and beyond. This Vienna, Virginia-based reverse auction provider works with public sector agencies on spending events as small as $3000. Thus, when you challenge yourself to look at purchasing commodities, goods, and services down to this low dollar threshold, a far-larger percentage of your agency’s procurement spending will suddenly become adaptable – maybe even conducive – to competing the purchases through reverse auctions.
1 Comment
Typical “expert” opinion! The author of this article is a classic example of my definition of an “expert” …
1) Person/organization that stands to benefit financially, usually substantially, from the field’s subject matter.
2) Person/organization that feels compelled to impose their opinions (and ultimately their “power”) on everyone, rather than collaborate with others to obtain the correct and best possible results.
3) rare: Person/organization that has conducted extensive research and studies far beyond classroom education in a given field. Research and study includes ALL affected aspects of the field and the impact the conclusions drawn have on ALL affected aspects of the field.
Most “experts” tend to be a combination of my first 2 definitions. This seems to be the case, yet once again!
It is clear that the impact of the author’s opinions has tested against all affected aspects of the Reverse Auction concept. For instance, his bold implications that Reverse Auctions are good in very nearly every situation simply ignore the impact on vendors. Well here’s a bold statement for you: “Any economic system that has a primary focus on price is bad for everyone.” This is no truer than in any government bid situations!