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Selling Your Services |
Internet Bidding is Latest Industry Wrinkleby Ranger Kidwell-RossThanks to a Virginia contractor, who asked that we not use his name in this article, for alerting about the bidding process in which he recently competed for a Kroger sweeping account. He told us that the former $35/sweep price was cut to $18/sweep by the end of the bidding, which went on for a little over an hour's time. Here's the story about this new online bidding system, as well as some of the reasons it seems destined to attract a loyal following of retailers. A recent development in the bidding of sweeping services is a reverse auction bidding process that is held online. The system is designed to lower costs and speed procurement of virtually anything a participating store purchases. Some retailers are also using the system as a means of selling their products. An advantage cited is that the system allows the playing field to truly become level, since it tends to remove any cronyism from the purchasing process. Although price is clearly a driving force, proponents tout that the process, when well run, still ensures quality. They point out that company managers are encouraged to keep the same requirements they would have for a supplier before purchasing was done online. However, retailers have seen about a 20% reduction in average cost of purchases across the board, from raw material and wholesale products to services such as sweeping. Added to that is the lower cost involved in screening and otherwise dealing with suppliers. For these reasons, along with the continuing explosive growth in the Internet, it appears this type of bid process will expand as time goes on.
Melissa Gisler is a media relation's specialist with GNX (www.gnx.com), the organization used by Kroger. GNX is a for-profit entity based in San Francisco that maintains, supports and implements the software. Gisler called GNX a "focused e-business solutions and services provider, developed through a partnership between Sears, Kroger and Federated Stores, as well as other well-known European companies. More than 45 retailing and manufacturing companies use GNX procurement and collaboration solutions on a subscription basis." "Procurement is a big process for retailers," Gisler told us, "and our member stores use our online negotiations process in a wide variety of areas. Kroger now does a large portion of its buying through GNX, for food and other products as well as for services like sweeping. Using sweeping services as an example: It doesn't change the way the company buys, it just streamlines the process. They're mainly using it to simplify and shorten the timeframe. It replaces the old system of sending out faxes and making calls to get bids. Responses used to come back in an inconsistent fashion, could take weeks, and there were always a number of phone calls that had to be returned. The timeframe could get fairly long. "As a contrast, with GNX the entire process is electronic. Specifications are sent out and responses confirm the sweeping companies having the needed requirements. Kroger managers then choose which companies they want to accept bids from. In that respect, the human element hasn't gone away, the process itself has just been streamlined. "One of the biggest concerns suppliers have voiced about our process is that they think it comes down to lowest price and nothing else, because they're afraid they will not have an ability to compete on any other basis. However, it's upto the retailer to determine what to base their decision on. Initially, contractors provide information about their companies using a form at our website. As part of the process, suppliers can attach photos, spreadsheets and/or other details about their company. This guarantees in advance that everyone invited to bid can deliver the quality of service in the required time frame. Then, theoretically, it should come down to price. "Suppliers that meet the requirements receive an invitation to bid in the auction. We supply them with details on how to get to the right spot online, how to register and when the bidding will take place. All a selected sweeping contractor needs in order to bid is an Internet browser, an email address and a computer. No special software or training is required. GNX has a 24-hour help desk that supports suppliers, helping them to get registered and walking them through the process if needed. "Then, at a pre-determined time, the actual auction takes place; it's up to the retailer to determine how long to leave it open. As with most auctions, the majority of the bidding occurs at the end. An auto-extend feature can be added to the auction, such that if someone bids in, say, the last five minutes, then the amount of time the auction stays open is extended a set amount of additional time. That establishes the low bid price, however there's no requirement that the final choice must be made strictly on low bid." Understandably, given the reduction in price per sweep that resulted from the online bidding process he participated in, the contractor who gave us the tip on this story came away unimpressed. What he saw was a dramatic loss of money per sweep, when compared to the former written bid process Kroger had been using. Precisely because of that, it's easy to see why Kroger's corporate culture -- and others -- would like the program. Not only are they reducing their cost of service substantially, but at the same time are expending fewer resources in order to qualify vendors and get bids. The design of the system would also seem to foster a higher level of competitiveness. Top-level managers in some national chain organizations are aware that, in some instances, local managers have been not seeking competitive rates. Because of the current relationships, local managers may purchase from people who are doing favors for them, rather than from the best providers charging the most competitive rate. As a veteran of bidding at ebay.com I know that, oftentimes, prices are bid up higher than the cost of a similar item in the local marketplace. I think that's due to the potential for a 'feeding frenzy' to occur as the end of the auction looms. For the same reason, it's easy to see why during the online bidding process contractors might commit to a price per sweep that's too low to sustain. And, unfortunately, the ones who need the business the most are the ones who will tend to do so. As a result, any stores that use this process need to make sure all contractors invited to bid are ethical businesses, ones with efficient sweeping equipment, insurance, and who are dumping responsibly and making all of their legally required payments. They also need a well-developed method to confirm quality and frequency of service. Otherwise, this 'arm's length' online process will surely attract shoddy contractors who are unable to compete otherwise, and who stay in business only by cutting corners. Perhaps this is an area where naPSa's new Certified Sweeping Company program can produce benefits for all concerned. This article is reprinted from American Sweeper magazine, Volume 9 Number 1, 2003. |
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