By: Kevin Alavi – VP, Strategy & Operations
Attract, LLC | 715.483.7500 | www.attractllc.com
A good part of my career was spent leading procurement teams for large retailers; specifically purchasing fixtures and new store construction materials. I have gathered pricing a number of ways: online auctions, sitting at a table and negotiating, and over email and phone. Each method has its pro’s and con’s, but one method that I caution the most in the category of fixtures and other retail display items are online auctions (reverse auctions, Dutch auctions, etc.).
What is your objective when performing an online auction? If it’s a commodity item, the objective is clear: price, price, price. But “buyer beware” when you base your decisions only on price for custom store fixtures. Many will argue that a reverse auction encourages some companies to unrealistically bid the lowest to outmaneuver business rivals. Critics contend that awarding contracts based solely on price means inheriting the risk of receiving inferior products (you get what you pay for).
I am not one to say that reverse auctions don’t work. If executed properly, they can work very well…as long as you’re comparing apples to apples. If your company’s procurement team is insistent on performing auctions for your fixtures, here are a couple tips to make sure you don’t get burned.
- Make sure you have engineered drawings with great detail. 2D/3D renderings do not tell enough information for a manufacturer to accurately bid.
- Allow the manufacturer time to review the drawings and ask questions for clarification before the bid. Some buyers will even post the common Q&A’s as part of the information support.
- Make sure to gather shipping costs too; not just unit cost. It’s best if the buyer can provide specific addresses to quote freight.
- Do not award to the lowest bidder. Instead, take the top three or five (depending on the number of bidders) and have them produce prototypes of the fixture they bid on. This will allow you to measure the quality of the fixture firsthand.
There are other risks you may not be able to uncover when doing an auction, but those risks can be true in other forms of negotiating price. The key thing is to make sure everyone is bidding on the same item, the same materials, same expectations.