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Managerial implications from Indian case studies on e-reverse auctions
Samir K. Srivastava
Operations Management Group, Indian Institute of Management, Lucknow, India
Purpose – The purpose of this paper is to investigate e-reverse auctions (eRA) implementation experiences across a diverse group of ﬁrms and sectors in the Indian context, to derive useful insights for theory and practice. Design/methodology/approach – The paper takes the form of a qualitative multiple case study following direct observation of object reality. The data analysed include written documentation, archival records, physical artifacts and unstructured interviews with key eRA personnel. Findings – eRA work best in a competitive, high capacity marketplace and are the dominant strategy when the focus is on low search cost per supplier, when the percent reduction over time in the price offered by the current supplier is low and when the product is standardized. The optimum number of bidders is ﬁve to ten. Most of the ﬁndings are in line with literature but some of them differ too. These will add to academic discourse. Research limitations/implications – The small sample size and case method approach limits the ability to generalize the ﬁndings. The ﬁrms were selected as a convenience sample and so may not be truly cross-sectional. Only analytical generalisation is claimed rather than any statistical generalisation. Practical implications – eRA improve effectiveness of the sourcing process and facilitate access to new suppliers. They also lead to standardization of sourcing procedures, reduced order cycle, reduced prices and generally higher service levels. This paper will help ﬁrms in India and other countries to develop policies, strategies and procedures while implementing eRA. Originality/value – The paper is perhaps the ﬁrst on eRA practices in India. The author describes the practices in detail and based on this develops a framework for eRA process and provides detailed and concise guidelines for managers. Keywords India, Electronic commerce, Auctions, Marketing strategy, Process management, Electronic reverse auctions, Managerial guidelines, Case studies, Three-stage framework Paper type Research paper
Managerial implications from eRA 513
1. Introduction Electronic reverse auctions (eRA) enable suppliers to compete online in real time and are changing the way ﬁrms and their consortia select and behave with their suppliers worldwide. They have gained popularity with the advent of economical and efﬁcient electronic capabilities (Smeltzer and Carr, 2003). The term reverse emphasizes that
The author thanks the middle and top managers of six ﬁrms for informal discussions and interviews, as well as for allowing on-site observations and document perusal. The author also thanks the suppliers’ managers who participated in informal discussions and interviews. This work would not have been possible without their co-operation and sharing of experiences, vision and expertise. Finally, the author thanks the anonymous reviewers whose pertinent feedback and useful inputs led to signiﬁcant improvement in the manuscript.
Business Process Management Journal Vol. 18 No. 3, 2012 pp. 513-531 q Emerald Group Publishing Limited 1463-7154 DOI 10.1108/14637151211232687
Madura Garments.] an online. savings through eRA vis-a Smeltzer and Carr. Coal India Limited. 2002).3 514 competition among suppliers typically drives prices down. bid events execution and post-bid analysis. Berger Paints. Ariba. Carrier Aircon. Arvind Clothing. Mahindra & Mahindra. 2002. training suppliers. Maruti Suzuki Limited. Smeltzer and Carr. Some segments where eRA have delivered substantial savings for buyers in the Indian context are steel. automotive. Godrej & Boyce. Synise and India Markets. where the suppliers can submit multiple bids during the time-period of the auction. Hero Cycles. as opposed to the prices being driven upward by competitive bidding in forward auctions. Metaljunction. HCL Infosystems. Many ﬁrms report millions of dollars of ` -vis traditional sourcing methods (Emiliani and Stec. . Hindustan Unilever Limited (HUL). Hindalco Industries. real-time auction between a buyer ﬁrm or a consortium of ﬁrms and many invited suppliers. 2005). Many ﬁrms like Apollo Tyres. eRA account for around 10 percent of total corporate purchase spend in India. HDFC Bank. Literature review eRA offer dynamic pricing and enable the purchasing ﬁrm or consortia to buy goods and services at the lowest price or a combination of lowest price and other conditions. supplier identiﬁcation. opportunity assessment. This will ensure that the ﬁrms adopting and implementing eRA are better prepared and need not reinvent the wheel. Hawkins et al. Larsen & Toubro. Electrolux. 2002. transportation freight. industries and sectors since the beginning of the current decade. They are being carried out across items. 2004). . commodities (starch and sugar). they deploy diverse fee structures comprising various combinations of ﬁxed start-up fee. we deﬁne eRA as: [. Some of the leading third party eRA vendors in India are 01markets. 2004. For the purpose of this paper. and where some degree of visibility exists among suppliers regarding the actions of their competitors. Oil and Natural Gas Corporation (ONGC) and Tata McGraw-Hill Publishing Company have reaped the beneﬁts of eRA. saving-based commission and consulting fee. Sufﬁcient literature exists to highlight the beneﬁts of eRA (Attaran and Attaran. Presently. Emiliani and Stec. location is not a constraint. 2002. Kulp and Randall. preparing request for quotation (RFQ). Trade2gain. stationery. advertising space. transaction volume-based fee. Further. maintenance. buyer conﬁdence and prior eRA sourcing satisfaction lead sourcing managers to choose to source via eRA. Firms are using eRA to drive purchase costs down to the lowest possible price (Attaran and Attaran. repair and operations (MRO) items. For this. with average savings of 10 percent across all item categories. We synthesise from review of the eRA literature and six case studies to develop a framework for carrying out eRA process effectively and provide step-wise detailed practical guidelines for managers.BPMJ 18. (2010) ﬁnd that expected savings. 2. The growing adoption of eRA in India motivated the present work wherein we investigate corporate experiences with eRA across a diverse group of ﬁrms and sectors to study their impact on business policies and practices. Most of them provide end-to-end services that include spend analysis. CommerceOne. infrastructure items and hi-tech equipment. These ﬁrms saved between 2 and 22 percent on their purchases. Himalaya Drug Company. JK Corporation. A case study in the UK public sector . Hindustan Motors.
. 2007). The buyer ﬁrms that aim to compete on prices are very positive about eRA whereas supplier ﬁrms that aim to differentiate on basis of their innovation capability report bad experiences with eRA (Caniels and van Raaij.. Acquiring redundant suppliers may be one of the strategies for risk mitigation as eRA generally lead to higher number of potential suppliers (Chopra and Sodhi. engineering and transportation. Schoenherr and Mabert (2007) describe a few common myths versus evolving reality in eRA context and describe their implications for managers. types of feedback to provide to bidders during the auction and the type of bid format to use. sequencing the lots’ auctions. Literature ﬁnds that eRA may be coercive (Giamietro and Emiliani. They ﬁnd that eRA are applicable to a host of items (products/services) such as stationery items. Some studies report a small set of suppliers who perceive eRA as an opportunity rather than a threat and have favorable opinions about them (Caniels and van Raaij. (2008) carry out a detailed literature review of eRA and call for more supply chain management research within the ﬁeld. buyers merely use eRA to survey market prices and qualiﬁed suppliers are asked to unfairly compete against unqualiﬁed lower-cost suppliers (Amelinckx et al. logistics services. 2007). An exploratory study of eRA outcomes based on an extensive literature review and multiple case study research ﬁnds that sometimes. The buyers often use the information gathered in eRA to renegotiate with their incumbent suppliers (Elmaghraby. 2007) and also mentions unethical eRA practices. billboards. Empirical investigations about the role of ﬁrm size in the use of e-procurement applications and their ability to facilitate supply chain integration have been carried out. 2005). Analysis reveals a signiﬁcant relationship between ﬁrm size and e-procurement application. From supply chain perspective. eRA use has been and will likely persist as an effective cost avoidance mechanism (Schoenherr and Mabert. chemicals and plastics.ﬁnds that eRA can improve procurement processes. Careful preparation of the event including strictly equal treatment of all participants and effective communication are key factors for obtaining beneﬁts from eRA (Losch and Lambert. They summarize in detail several sourcing management related conditions that inﬂuence the success of eRA. the buyer may experience an increase in realized costs of doing business with the winning supplier (Elmaghraby. Sehwail et al. 2007). Sometimes. in sectors such as telecommunications. Elmaghraby (2007) deﬁnes various eRA formats and also addresses issues related to constructing bidding lots. etc. while long-term relational contracts ensure the quality of the procured products or services when these have non-veriﬁable attributes (Tunca and Zenios. personal computers. eRA create supply chain efﬁciencies by selecting the least costly bidder. software licenses. opaque contract awarding processes and changing item speciﬁcations after the auction. insulators. One may refer to Wagner and Schwab (2004) for early literature on eRA. Srivastava. Bandyopadhyay et al. the success of eRA may not manifest just in price reductions but also in the reduction of costs of the purchasing ﬁrm (Arnold et al. realize cost savings and reduce delivery times ( Jones et al. 2009). She also discusses merits and demerits of rank versus full disclosure in eRA. 2007). 2006).. Chopra and Sodhi (2004) suggest that acquiring redundant suppliers may be one of the strategies for risk mitigation as eRA generally lead to higher number of potential suppliers. (2008) ﬁnd lowered prices driven by increased competition as the most notable beneﬁt of eRA. 2004). 2008). 2009). The responses of buyers and suppliers to eRA have been found to be generally different. However. Managerial implications from eRA 515 . 2009. 2007).
We used a series of event observations. Multiple cases are a powerful means to create theory because they permit replication and extension among individual cases (Eisenhardt. Research methodology A three-step research design was adopted. The ﬁrst step comprised of an extensive literature review that has been summarized in the previous section. We used a cross-industry sample of six ﬁrms from among the ﬁrms carrying out eRA for at least last ﬁve years in India at the time of the study to derive a comprehensive set of ﬁndings. archival records and physical artifacts as the primary source of data. six to ten cases should provide evidences to support or reject propositions. The research in the area is exploratory in nature focusing on deﬁning criteria and rules for managing the actual event. in most situations. So. larger ﬁrms are more likely to use integrative types of e-procurement (Pearcy and Giunipero. Srivastava (2009) describes reactions and tactics of suppliers and suggests countermeasures against them based on his study of Indian ﬁrms. 1991). 2004). achievement of higher service levels. deductive analysis of the case study ﬁndings was carried out to derive useful managerial guidelines. chronicling success stories. 3. literature suggests that eRA lead to accurate fulﬁllment and improved effectiveness of the procurement processes. 2008). It was a convenience sample whose managers were known personally and agreed for allowing on-site event observations and document perusal besides informal discussions and interviews. In the last step. These were substantiated with data from secondary sources which included ﬁrms’ and vendors’ web sites and articles in business magazines. Concerns about supplier-buyer relationships persist. Much of the research endeavour is fragmented and there is little in the literature that offers a holistic management approach that is underpinned by an empirical study. Our approach was not limited to description of the phenomena. improved control of supplier relationships. . Care was taken to ensure that it represented a diverse group of industries and auction experiences. Another area of concern is the relative lack of security in eRA which too is getting attention. while Eisenhardt (1989) recommends four to ten cases.BPMJ 18. Contingency approaches to eRA use also need to be explored empirically. In the second step. access to new suppliers. a multiple case study analysis involving a set of six ﬁrms was carried out. reduced prices from the key suppliers. Our selection of six cases falls within these recommended frames. but also sought to develop theoretical concepts. Comparison of two or more case studies provides concepts that are relevant to an emerging theory and support explorative investigations. There is not much published literature on eRA practices in India. interviews and perusal of written documentation such as reports and memos. The ﬁndings from auction event observations were triangulated by analysis of documents and information from secondary sources.3 516 Speciﬁcally. Corporate experiences based step-wise detailed practical guidelines for managers to ensure better preparedness of ﬁrms adopting and implementing eRA is missing. Yin (2003) argues that. Recently. The empirical analysis explored a number of key issues concerning eRA. Detailed studies about the implementation and use of eRA by Indian ﬁrms need to be carried out and documented along with their managerial implications. examining the barriers to implementation and suggesting ways to surmount them (Emiliani and Stec. reduced inventory carrying costs and reduction in the order cycle.
an automobile manufacturer (auto sector). Our sample ﬁrms comprise of a global travel. The second level of analysis is the ﬁrm. capacitors. and in identifying steps required to set up an eRA capability. ﬁnding conditions under which eRA is/is not effective. use it. an air-conditioner manufacturer (consumer durables sector) and two ﬁrms manufacturing and distributing fast moving consumer goods (FMCG sector). travel packages and packaging materials. From this unit of analysis. advertising.e. This included observation of a total of 18 auction events in the six ﬁrms.On-site observations were carried out for a period of about eight months. rubber. insurance policies. All the six ﬁrms in our study used online e-procurement and reverse auction tools at their e-business platform either by themselves or through third-party online reverse auction service providers. i. Multiple events helped to develop sound arguments. computer peripherals. ﬁnancial and network services provider (service sector). steel. A brief proﬁle of the ﬁrms under study describing nature of their business. Informal discussions and interviews with a few suppliers’ managers were also carried out wherever possible. Key observations related to actual implementation. auto components. From this level of analysis. Data at this level provided insights into organizational changes to support eRA. This also helped us in suggesting best practice processes. Case studies We explore how the six sample ﬁrms in ﬁve different sectors use eRA and how these are integrated into their sourcing processes. a computer equipment manufacturer and distributor (IT sector). i. Managers and executives directly responsible for eRA implementation in these six ﬁrms participated in discussions and unstructured interviews. including the steps to follow the problems that are likely to occur and how to avoid/ﬁx them. we derive results about the process of initiating and adopting eRA as a business practice.e. the process a ﬁrm used to build eRA capability. the information revelation options available and exercised are drawn from the case studies. wire grills. The purchase spend refers to the total Managerial implications from eRA 517 . wiring harnesses. 4. percentage purchase spend in turnover and percentage of eRA spend in overall purchase spend for the year 2009-2010 are presented in Table I. Turnover means the total revenue arising from the principal activities of the ﬁrm and excludes those items of revenue and gains that arise incidentally. we derive information about the process of conducting an eRA. Two levels of analysis are embedded in this study. The emerging patterns were then analysed and compared with the existing literature ﬁndings to identify potential explanations to differences and also to provide directions for further research. wire shelf. each individual instance where a ﬁrm conducted an auction. Corporate documents and archival records were accessed for primary information. and reﬁne it over time. Related data and information for six to ten years were analysed through a cross-case analysis comparing evidence from the six ﬁrms. They had been doing so for at least last ﬁve years and had carried out a number of auctions on diverse items like third-party transportation. courier services. The ﬁrst is the eRA instance. Unstructured interviews were conducted with managers of each of the six ﬁrms at several points in time (generally before and after auction events) to understand the processes as well as the evolution of changes. The cases were compared with each other in order to identify commonalities and potential patterns. year in which eRA were started.
. None of the ﬁrms in our study lost trust in the external service provider and all these ﬁrms are continuing with eRA and continue to source more items through them. the ﬁrms subsequently joined a consortium of supply chain partners to conduct eRA for certain items in order to capitalize on economies of scale. In two cases.] we then realised that we can achieve “c ¸ ritical mass” if we somehow combine our orders with our tier-2 and tier-3 suppliers [. The service sector (Firm A) is reaping higher beneﬁts as it has signiﬁcantly higher percentage of eRA spend in purchase spend. we name the Firms A-F and disclose data in terms of percentages only. For the reasons of anonymity.] today this strategy is beneﬁtting us as well as our tier-2 and tier-3 suppliers. In fact. the sourcing through eRA is relatively lower. A brief proﬁle of the ﬁrms under study F Note: aStarted with third party and subsequently shifted to in-house amount spent by the ﬁrm on procurement of goods and services. Firm D. shifting auction in-house worked out as a more effective option. ﬁnancial and network services provider Automobile manufacturer Computer manufacturer and distributor Air-conditioner manufacturer FMCG Manufacturer and distributor FMCG manufacturer and distributor Year eRA started 2002 2003 2003 2004 2000 2001 Auction process choice Third party In-housea In-house In-housea Third party Third party Percentage of purchase spend in turnover for 2009-2010 36 65 57 60 43 45 Percentage of eRA spend in purchase spend for 2009-2010 28 4 14 12 10 9 518 B C D E Table I. So. Initially. . being a small ﬁrm was mainly facing supplier pool insufﬁciency. As one of the managers at Firm B stated: We found that our item quantities for certain items were not large enough to leverage the beneﬁts of eRA. Once a sufﬁcient pool . late and lagging adopter ﬁrms did not indicate any signiﬁcant differences in beneﬁts accrued which were measured in terms of percentage cost savings. .BPMJ 18. all the ﬁrms used eRA service providers but later two of them (Firms B and D) started carrying out the auctions in-house. It is worth sharing here is that for these two ﬁrms. one of them served as an example for its counterparts in Asia-Paciﬁc to go for eRA. . the absolute percentage spend on eRA was quite low and stagnant as evident from Table I. Comparison of records between early. we could also not attract many suppliers [. we see that the FMCG sector ﬁrms (Firms E and F) were the ﬁrst-movers and started eRA during early part of the last decade. From Table I. delivery improvements and larger supplier pool. The manufacturing-focused ﬁrms (Firms B-D) were slightly late to start eRA and although their purchase spends form high percentages of their turnovers.3 Firm Nature of business A Global travel.
No. . The multi-year change in data for a particular item in one of the FMCG ﬁrms (Firm E) is summarized in Table II.] the eRA concept having been internalised. we are carrying out auctions using in-house developed eRA platform [.2 percent and then hovered around 3-4 percent in subsequent years. Year of eRA Base year First year Second year Third year Fourth year No of suppliers 10 (sealed bid) 8 (eRA) 10 (eRA) 12 (eRA) 12 (eRA) Order value 100 109 120 135 140 Percentage savings Not applicable 15. . The supply market was either competitive or oligopolistic.] today we have a larger pool of suppliers and slowly but steadily mutual trust too has developed.] after a few successful auctions we have been able to arrive at a right auction designs which are robust and ﬂexible establishing trust in the tool. it started conducting eRA in-house. As one of the managers at Firm D stated: Initially.2 3. Most bid events were single-lot. The additional savings in the subsequent years varied from 3 to 8 percent.] with time. The number of participants in each eRA varied and was found to be dependent on the type of item.of suppliers and mutual trust had developed. we seldom have to look beyond our existing supplier pool for conducting eRA. Now. specially when eRA was being conducted for a particular item for the ﬁrst time (S. Table III summarizes the 18 auction events that we observed in the six ﬁrms. the overall supply capacity was much more than the auction bid requirements. Subsequent savings in eRA for a third-party transportation in a Firm E . . Further. The number of participating suppliers also generally increased. .] they helped us achieve low search cost per additional supplier [. Savings in the ﬁrst year were 15. there was signiﬁcant reduction in order cycle times in certain instances. from 2006 onwards. we found paying the service provider an unnecessary and avoidable expense. . we were apprehensive in going for eRA for certain components where we had a limited number of suppliers.4 4.] this also resulted in better delivery adherence besides cost savings. . Bundling was done for procedural convenience or when the volume for individual items was low. The base order value is taken as 100. service levels increased marginally in eRA. Managerial implications from eRA 519 Another manager at Firm D stated: There was lot of initial resistance from incumbent suppliers. 16 and 17 in Table III). The items were found to be routine and leveraged types as per Kraljic’s (1983) framework. All of them were planned eRA and none had to be cancelled. . . . This comes out clearly from statement of a manager at Firm B: We have a full-ﬂedged IT department employing competent professionals [. our relationships took a downswing [. Generally. single-price auctions. A few were for multiple lots too (bundled). .2 3. eRA helped our sample ﬁrms to reduce the cost by 15-20 percent in ﬁrst year of implementation. volume of order and a host of other factors. . The eRA service provider helped us to increase the supplier pool [. . In most occasions.1 Table II. Firm B had reasonable potential to conduct eRA in-house. our suppliers have got acquainted with the process and faith in eRA has ﬁrmed up [.
Further.3 Type of S. The EMD ranged between INR 50.6 percent over the previous year.2 to 3. The criterion for certain additional weightage to incumbent reliable suppliers had already been speciﬁed Supplier Final price Table IV. data encryption was used to ensure that data traveled safely.No.000 INR (2 0.8%) 3 2a Notes: aFinal bid winner.750.000 INR (3.4%) 4 Firm Y 120. speciﬁc identities and passwords were provided to bidders for online bidding after providing sufﬁcient training. INR – Indian national rupee (1US $ < 47 INR in January 2010) .2%) 5 Firm V Firm W 123. Summary for observed auction events In all these instances.000 INR 2 250.BPMJ 18.5 No change Down 1 Up 2 Up 1.000.000.250 INR 3.000 INR 1. No. Summary of savings in an eRA at Firm D Savings Rank Firm X 124. The software solution in all instances had built in security checks and balances to ensure that no unauthorized bidder could participate in the bidding process.0%) (2. Firm item(s) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 A A C B A E F D F E A F C D E C E B Leveraged Routine Bundled Bundled Routine Leveraged Bundled Leveraged Bundled Leveraged Leveraged Bundled Leveraged Routine Bundled Leveraged Bundled Leveraged Supply market characteristics Competitive High capacity Competitive Oligopolistic Competitive Oligopolistic High capacity Competitive Competitive High capacity Competitive Oligopolistic Competitive High capacity High capacity Oligopolistic Competitive Oligopolistic Reduction in price Supplier Percent change (%) participation in service level 6 7 5 3 4 3 8 3 8 5 6 4 5 4 3 10 16 4 10 15 9 5 18 7 10 5 15 14 9 6 7 14 11 7 13 8 Up 1.000 INR (1. One noteworthy feature was that the ﬁnal award went to the ﬁrm which had quoted second lowest as it was an incumbent reliable supplier while the lowest quoting supplier was a non-incumbent supplier.6%) 1 Firm Z 124.000. Table IV summarizes the savings in a particular eRA instance (S.500. These are on the lower side as the auction was being conducted for the sixth time and the item material prices too had risen marginally over the previous year.750 INR 121.8 No change Up 1 No change Down 2 Up 2 No change Down 1. 8 in Table III) for wire harness at the air-conditioner manufacturer.5 No change Up 2 No change Up 1 Up 3 No change Percent change in order cycle 2 20 2 10 2 10 28 No change No change 2 10 No change 25 No change No change 2 15 No change No change No change 2 50 2 30 2 20 520 Table III. The potential savings ranged from 2 0.000 INR 4. This eliminated non-serious suppliers and left little scope to various stakeholders for tinkering with the system.500.457.000 INR 500. The practice of charging an earnest money deposit (EMD) was followed.000 to INR 1 million.000 INR (0.292.
the push to adopt eRA was circumstantial. These comprised two new and one incumbent vendor. Archival records show that three vendors won the bid for overall seven lots. A lot of effort went into electronic document preparation and training. The initial response of most incumbent suppliers in ﬁrst instance of eRA proposal in all case studies was not very positive. The rise in gasoline (diesel) prices led to a demand for 10 percent hike and negotiations with the incumbent vendors were not yielding results. reactions from new potential vendors were generally positive like. we did not observe any instance of coalition and collusion nor was this reported by any of the stakeholders we interviewed. There were large resistance from incumbent vendors to participate in eRA but ﬁnally the ﬁrm was able to convince most of them to participate. We also did not observe or hear about unethical Managerial implications from eRA 521 . the ﬁrst auction event in our sample ﬁrms was carried out by one of the FMCG manufacturer and distributor (Firm E) in the year 2000.com (now acquired by Ariba) and 01markets. They decided to give eRA a try for transportation as the potential beneﬁts seemed promising and one of the eRA service providers (01markets) offered very enticing terms of contract. In pre-bid qualiﬁcation. Finally.com (an eRA arm established by Wipro in April 2000) approached the supply chain head with the concept of eRA. Archival records. On the other hand. Both these eRA service providers were keen to establish themselves in the Indian market and saw great opportunity in proving service to this reputed FMCG ﬁrm. The managers of this FMCG ﬁrm were thus exposed sufﬁciently to the eRA concept. we feel betrayed!” They expressed unequivocally that there was no upside for them. Freemarkets. . Around the same time two eRA service providers.clearly in the RFQ. online eRA was conducted. Experiences of the other ﬁve ﬁrms in our study have been similar. “You’re focusing only on costs and trying to squeeze us [. C. It will lead to compromise on quality!” [. E and F). 01markets trained the vendors for online bidding and conducted a few mock runs. The managers of the ﬁrm shared that this was more incidental than being innovation driven.]. if any as additional charge. more than a single party was awarded the contracts as per the pre-stated criteria in RFQ in four of the ﬁrms studied (Firms B. . This ﬁrm used third parties for transporation from its ﬁve contract manufacturing sites and had reasonably good service delivery experience with the incumbent vendors. technique and technology. incidence recalls and our own observations reveal incumbent vendor’s statements like. So. . Going back to adoption of eRA. this ﬁrm has been conducting eRA for these services and has also been adding other items in the eRA fold. Some technological glitches were detected and corrected during mock runs (like even larger bid prices being accepted or typological errors like additional or skipped number entries in bid values). It was charging negligible ﬁxed cost and very small percentage of savings accrued. In all our observed eRA events. It was also willing to take responsibility for training the vendors and taking care of most of other technical requirements for hosting eRA. This included a few additional vendors identiﬁed by 01markets in supplier search. This eRA resulted in savings of about 9 percent from the base year for the ﬁrm rather than it paying additional 10 percent as per incumbent vendors’ demand. . in few cases of eRA involving different lots.] “We always served you well. “We would love to supply to you!”. Since then. 17 of these qualiﬁed for the bidding. However. benchmarking and top management dictates have been the prime drivers for eRA adoption for them. This ﬁrm worked in close co-operation with 01markets to conduct eRA for the ﬁrst time. Similarly. Total 22 Vendors agreed to participate. rather than co-incidence.
commodity price trends. participating community. The supplier participation increased in subsequent years in most of the ﬁrms studied. Our study reveals that eRA are the dominating strategy when the focus is on low search cost per supplier. few incumbent suppliers of Firm F backed out at the last minute. We did not observe any renegotiations with the suppliers and none of the ﬁrms reported any concern in relation to the supplier performance level once the contract had been signed. the process took only two to four weeks for certain items. supply-demand analysis. opportunities and risks of eRA sourcing for each speciﬁc procurement action. lead to accurate fulﬁllments and improved effectiveness of the procurement process.] eRA may provide opportunity for harmonization and standardization of suppliers’ terms and conditions and thereby align the ﬁrm’s business processes.BPMJ 18. number of suppliers available. This was quite different from the concerns in extant literature. lack of online bidding exposure.000. Commenting on the pre-requisites and beneﬁts of eRA. it is better to have a standardized one [. In the second instance. when the item falls under routine and leveraged categories and when there are not many variants of the item. . current contracts. Firm C had to pay the service provider the upfront charge of INR 150. opaque contract awarding processes and change of item speciﬁcations after the auction by the buyer.] eRA also lead to reduction in the duration of the order cycle. when the percent reduction over time in the price offered by the current supplier is low. reduce prices from the key suppliers.]. Most of middle and top managers of the sample ﬁrms saw both potential beneﬁts as well as risks in eRA. . We found only two incidences of cancellation in records. . In ﬁrst instance. . procurement and technical team requirements. The ﬁrms and the service providers shared losses as per their pre-agreed terms. A big advantage of eRA is that participant location is not a constraint [. a manager of Firm E stated: It is vitally important as a buyer to have clear item speciﬁcation and contract terms. The complete process generally took as long as four months for certain items.3 522 eRA practices. disadvantages. etc. The losses were made up by the EMD deposits lost by the four incumbent suppliers. All the six ﬁrms carried out post-bid reviews to make sure bidders completely understood the scope and schedule a well as all the associated costs. Sourcing managers in all six case studies analysed the advantages. All planned bid events did not always take place. bid transaction value and competition amongst bidders. . reduce inventory carrying costs and generally lead to higher service levels. On the other extreme. particularly in the initial few years and some of them had to be cancelled/postponed due to reasons like inadequate number of bidders. where vendor development along with design inputs was required to be undertaken. The buyers select items for eRA on the basis of various parameters like the market characteristics. The actual auction (online bidding) was usually open for 2-6 h depending on factors such as lots. The service provider too had to bear the burden as the effort gone waste was much greater. Our payment terms were standardized to 30 days from earlier range of 15-90 days that we had for different vendors. so rather than having many variants of the item. The suppliers are . Auction volumes must me reasonably high to attract potential suppliers. The buyers reveal selective information to the potential suppliers at the time of online bidding. . We reproduce below statement of a manager of Firm A: eRA improve control of supplier relationships. Access to new suppliers helped us to mitigate supply chain risk by having more potential suppliers [. etc.
g. It participates and chooses either one of the two bidding strategies: submits the lowest bid or offers the bid price that is greater than the lowest bid price but less than the lowest bid price plus expected buyer’s switching cost. collusion and bird watching as reported by Srivastava (2009) which are reproduced in Table V. Most successful eRA in our study suggest that the optimum number of bidders is ﬁve to ten. if any. uncertainty about risk versus returns. As in literature (Bartezzaghi and Ronchi. although no ﬁrm in the study had a comprehensive approach to eRA costing recording and reporting. deal. Besides the barriers to eRA from external stakeholders. Bidders see their own rank in the least transparent mode. These may again be available for the whole time elapsed or for the last few bids. Most ﬁrms had a list of preferred suppliers and preferences to incumbent suppliers in RFQ served as a surrogate for switching costs. They consider switching and procedural costs besides the bid price to determine the impacts of eRA. The buyer gets to see the overall comprehensive information. during or after the online bidding process) Collusion – attempt to collude with other suppliers during the online bidding Bird watching – participating in eRA but not bidding. 2005). Expenses other than supplier switching cost are generally not considered in RFQ documentation. They invariably get alias names to prevent cartelization. The computer screens visible to the buyer and the bidders are also different. In more transparent mode. market and business environment/practices and internal resources/competencies. high switching costs inhibit the readiness of ﬁrms to invite a large enough number of suppliers to participate in eRA. They also used various tactics like threat. an oral or paper bid before.told the historic prices and the reservation price. goal of gaining market intelligence Source: Srivastava (2009) Countermeasure Make it clear that the buyer is totally committed to the eRA process and there is no alternative Buyer should not be tempted since such an offer indicates that there is “money on the table” Make it clear that no bids will be considered outside of the online sourcing process Issue prior warning that supplier collusion is illegal and will be dealt with accordingly Make pre-bid qualiﬁcations stringent so as to generally address this issue Managerial implications from eRA 523 Table V. circumventing. A key observation across all eRA was that the incumbent supplier generally knows the distribution of buyer’s switching cost. The barriers were generally related to entrenched practices (resistance to change). the ﬁrms under study also experienced barriers from within – from purchasing and other departments. technology/software related apprehensions. These barriers may be present elsewhere too but have not been reported explicitly in extant literature. our interactions indicate that most incumbent suppliers do not like reverse auctions and offered resistance as eRA restrain their contractual power and reduce their margins. they also see the competitors’ bids. The same can be broadly classiﬁed into “adoption” and “implementation” barriers and are similar to the ones suggested by Srivastava (2007) in Indian retail scenario. Our ﬁndings reveal that the buyers go for eRA if they minimize their total cost of sourcing. while the bidders can see only selective information. Mostly. Countermeasures for tactics of suppliers . The most Tactic Threat – try to sway the buyer by claiming they will not participate Deal – offer lower pricing in return for not going through eRA Circumventing – submitting bid outside (e.
In the post-bid process. the bid-awards. The detailed documentation with the suppliers who win the order has to be carried out as in normal Pre-Bid Process Collect Supply Requirements TrainPotential Suppliers Collect Third-Party Exptirse Data and Supplier's Data Select Potential Suppliers Select the Third Party or Develop own Web-site Define Pre-Bid Qualifications Prepare RFQ Invite Suppliers On-Line Bidding Process Inform Date & Time of Bidding Give alias Names to Prevent Cartelisation Carry out On-line Bidding Reveal Pre-agreed Selective Information Figure 1. It is advisable to provide alias names to the potential suppliers in order to maintain anonymity during the online bidding process. as per pre-deﬁned criteria need to be transparently communicated to all the bidders. The selection of potential suppliers after screening through pre-bid criteria and their training for online bidding form the last stages of the pre-bid process. In the pre-bid process all the necessary spadework needs to be carried out meticulously. collecting detailed information about potential suppliers and collecting performance information about third-party online reverse auction service providers. online bidding and post-bid processes. and each of these individuals received over 15 h of training. Actually. the pre-bid and post-bid processes are as important as the online bidding process.3 524 common means of overcoming these barriers followed by these ﬁrms was through education and training of purchasing and other department personnel. On the basis of the above case studies. Accordingly. obtaining the input of employees in the development of the eRA process. we develop a framework for carrying out eRA process effectively the ﬁrst time itself. programming an auction. We break the entire eRA process into three major stages or sub-processes: pre-bid. Pre-agreed selective information may be continuously provided to them during the online bidding process. a third party has to be selected or the process of hosting the auction site has to be started. the key attributes of an auction. The same is shown in Figure 1. At one ﬁrm. Detailed RFQ and pre-bid qualiﬁcations needs to be prepared before suppliers are invited. the potential suppliers have to be informed of the date. and by providing internal performance incentives including making eRA use and performance a part of the employees’ formal performance appraisal. Next. In these training sessions. Three-stage framework for electronic reverse auction process Post-Bid Process Communicate Bid Award(s) Carry out Detailed Documentation (as in Normal Bidding Process) Continuously Monitor Supplier(s)Performance . and running and rerunning the auction were addressed. time and duration of the bidding and the same needs to be carried out. a decision needs to be made whether a third party is to be hired or the eRA activity is to be conducted in-house. Now. over 50 personnel were trained in the use of eRA.BPMJ 18. This includes collecting methodical and detailed item speciﬁcations. Another technique used by some ﬁrms is the sharing of success stories to provide motivation and evidence of the effectiveness of eRA.
the current supply and demand environment. They reduce paperwork as well as review and award times. managers must carefully weigh their pros and cons. In addition to evaluating the need for transparency in the award decision. the focus of eRA is on attaining process and cost efﬁciencies. Though eRA offer several beneﬁts for both buyers and suppliers. Discussions and managerial recommendations Although.bidding process. it should ﬁrst and foremost consider some key factors like thorough understanding of their advantages other than one-off transactional cost savings. eliminating confusion and potential disputes. poor incumbent supplier performance and likely price increase. indirect costs and several other factors which vary for each item and for each buyer. They reduce the possibility of production disruption due to problems of a single supplier. Everything is captured electronically. routine. If a ﬁrm is contemplating to conduct eRA for the ﬁrst time. we provide step-wise detailed ﬂowchart to help managers in conducting eRA. it needs to start with eRA Managerial implications from eRA 525 . The process is transparent and everyone gets the same pre-bid package and walk-through. high capacity marketplace. it needs to make its internal stakeholders change-ready. It is only a pricing tool a means to an end – not the end itself. For this. Besides. On the basis of our study. higher the supply market fragmentation and competition among potential suppliers higher likely is the item auctionability. non-critical and/or leverage items. The next step is related to the fact whether the ﬁrm has conducted any eRA earlier or not. eRA work best in a competitive. care has to be taken of the differences in the cost stack up. Issues related to sequencing the auction bundles and rank versus full disclosure need to be resolved beforehand. Buyers’ decision to use eRA depends on item speciﬁcations. The ﬁrst and foremost step is the identiﬁcation of a sourcing opportunity. all questions may be addressed and answered electronically and shared with all bidders at the same time. contract. supplier relationships. there is also a need to understand which auction format is best for a particular market. pricing agreement or blanket order expiring in less than few months. resource investments. the advantages of an online auction format could be secondary to the more critical issue of getting more suppliers. ﬁrst time or subsequently. higher likely is the possibility of using eRA. A very important aspect of post-bid process may be continuous monitoring and feedback of supplier(s) performance. the freight costs and the currency differences during market making process which includes the RFQ preparation and compliance from the suppliers so that the suppliers are clear what stack up they have to put. Some of the prime drivers that lead to a potential eRA sourcing opportunity are: cost reduction initiatives within the ﬁrm/industry. in addition to the entire legal structure. Similarly. 5. Similarly. the duty structure. greater the centralization of decision-making in buying centers. It is related to the soft aspect of cultural readiness and the hard aspect of eRA software related capability. Managers must understand how eRA ﬁt in the broader context of effective supply chain management. The same is shown in Figure 2. Often. Further. In case of bidders from overseas. When a ﬁrm is looking at eRA as a sourcing option. suppliers may consider the opportunity to benchmark their cost structures with competitors to improve their supply chain efﬁciencies. they help ﬁrms not just in cutting costs or lowering investment but also provide more opportunities to stay focused on core competencies. time involved in the process and the likely cultural and organizational barriers. requirements of new parts/components/material.
Flowchart for conducting electronic reverse auctions Notify Suppliers of Outcome Conduct Post-Bid Award Meeting Implementation with Awarded Supplier(s) .BPMJ 18.3 Identify an eRA Sourcing Opportunity 526 Going for eRA first time? Yes Conduct an eRA Kickoff Meeting with Key Internal Stakeholders No Perform Data Collection and Data Formatting Are internal stakeholders convinced? No No Is the opportunity suitable? Yes Build / Source eRA Software Carry out necessary changes Yes Draft Comprehensive RFQ Document and Assemble Other Related Documents OK Test Software Not OK Increase Supply Base and Develop Supplier Invite List Pre-Bid qualification Test Finalise Supplier List Conduct Online Reverse Auction Manage Suppliers to Bid Day Figure 2.
rules for the auction are frozen and potential suppliers (only those who qualify pre-bid qualiﬁcations and are willing to participate) are to be formally invited. if any to ensure success of the event. Those who qualify make it to the ﬁnal supplier list. An inherent requirement in the software is that it should be robust and reasonably ﬂexible. etc. Sufﬁcient preparedness should be there for real-time interventions and clariﬁcations. at least some of them should be enthusiastic about it. current requirements. The detailed RFQ document should contain starting and reservation bid prices. This is followed by the post-bid process wherein a post-bid award meeting is conducted to notify the outcome to the suppliers after analysis of the results. Further. With experience and growing volumes/value. To actually conduct eRA. detailed cost breakdown and service level expectations. Even non-awarded suppliers should be communicated the result properly.kickoff meeting with key internal stakeholders such as personnel from purchasing and actual user departments. Many times other stakeholders such as personnel from quality assurance and marketing could also be involved. The data collection should focus on the unique characteristics. Finally. If the decision is yes. computer databases and inputs from internal stakeholders. RFQ should be posted during this step. Ample time should be allowed for them to prepare for the actual online auction. A good practice Managerial implications from eRA 527 . lot listing/bundling. Site visits of personnel from buying ﬁrm to suppliers’ works may be carried out selectively to ascertain suppliers’ credentials. the bidder agreement. a supplier invite list should be arrived at. otherwise. the ﬁrm always has the option of developing the capability in-house. managers need to decide whether the opportunity is suitable or not for eRA. last price (if any). The pre-bid qualiﬁcation test for potential suppliers is a deﬁning step. The software needs to be tested and necessary changes need to be carried out to make it appropriate to the particular requirements. The formatted information along with factors like availability and readiness of sufﬁcient number of suppliers. the next step is drafting a comprehensive RFQ document and developing a supplier invite list. They need to be trained for online bidding through a series of mock runs. Detailed discussions and concerted efforts are required to convince most of them about the likely beneﬁts of the initiative. These auction participants need to be managed to the bid day. Now. quality documents and the terms and conditions document. Necessary actions should be taken to prevent any eRA abuse. A ﬁrm has the option of doing it in-house or sourcing from outside. The focus should always be on increasing the supply base (number of potential suppliers). Once the software capability is established. It is advisable to have a list of preferred suppliers as well. The more successful strategy observed has been to engage third party eRA hosts. software capabilities are required. detailed speciﬁcations. Suppliers may be given an alias name for bidding to avoid “cartelization”. a non-disclosure agreement. particularly the incumbent suppliers to participate ﬁrst time. historical data and market sourcing may be carried out. extended cost. reestimation of beneﬁts and software capability provide the instance-related inputs to take a decision. it has to be followed by data collection and data formatting. As eRA may not be suitable for all types of purchases. The sources could be archival records. This facilitates analysis and updating. drawings and prints. they may not be able to convince the external stakeholders. Conducting the actual online reverse auction as per agreed upon visibility comes next. Here. Data formatting entails storing the collected meaningful information in a standard format in a computer spreadsheet/database.
BPMJ 18. To successfully implement eRA ﬁrms should: . The success of the eRA in general depends on the application of the right conditions for eRA and a right auction design. Further. However. The last step is related to implementation with awarded supplier(s). our work provides empirical evidence obtained through a qualitative grounded theory approach. hospitality. they may also increase the effectiveness of the supply process in terms of quality. FMCG. strategies and procedures while implementing eRA. consumer durables. software licensing. maritime shipping. insurance. combined eRA outcomes and that eRA success may be more than mere price savings. textiles. practice leads theory and therefore the ﬁndings will add to academic discourse. build technical eRA competencies or ﬁnd suitable third parties.3 is to ﬂash the results within minutes of the conclusion of the online auction. Proper security checks and transparency in RFQ can successfully stop unethical practices. In some areas. computers and peripherals. . contract manufacturing. noting down critical incidences may also be useful. Continuous auditing and monitoring of performance data is helpful in both good implementation and future use. These need a strong process awareness and knowledge. The adoption of the framework will have impact on practitioners. we show that buying ﬁrms can achieve multiple. healthcare. Through review of the literature and our multiple case study research. Issues related to lot-sizing. weightages to other criteria besides price. MRO. in RFQ. eRA have led to decreased cycle times for suppliers and a signiﬁcant decreased buyer cycle times for repeat auctions. Missing knowledge may lead to wrong decisions along the sourcing process. degree of innovation. leasing. including lot size. time-to-market. Methodologically. creating competition among suppliers and increasing service level to the end consumer. They will help ﬁrms in India and other countries to develop policies. contract negotiation and purchase price. Our case studies suggest that experienced eRA ﬁrms have moved beyond the hype and have embraced them as part of their normal sourcing processes. eRA seem more appropriate and suitable in industries and sectors like advertising. provide clear and comprehensive item (product or service) speciﬁcations. information revelation and the type of items are also covered brieﬂy. . eRA allow procurement cost reduction by increasing market efﬁciency in terms of suppliers’ search and selection. courier. retail. 6. Conclusion This paper examines and describes the actual experiences in conducting eRA across a diverse group of ﬁrms and sectors in the Indian context. ensure that the purchase quantity/value is large enough to provide an incentive for the supplier to participate. This ensures transparency and mutual trust. They provide the opportunity to increase the efﬁciency of the supply process by automating and facilitating the procurement process. Location not being a constraint was found very convenient by all the stakeholders. 528 . transport and warehousing. etc. Our major contribution lies in deﬁning a framework for eRA process on the basis of our case studies. The parties should enter into a written contract as in any purchasing process. The process is applicable to sourcing of many types of goods and services across most sectors and industries. expanding the supplier base. Suitable pre-agreed metrics should be used. tourism. logistics. auto components. bulk chemicals.
e. This is in agreement with Wagner and Schwab (2004). It may be worthwhile to investigate on pattern of Pearcy and Giunipero (2008) about how eRA practices differ across ﬁrm size in the Indian context. We have also not looked into eRA as a technologically assisted form of power-based bargaining in supply chains subject to abuse by buyers and market makers. The ﬁrms were selected as a convenience sample and so may not be truly cross-sectional. which was earlier taken to be a driver for doing business in a particular fashion. Web-based tools now exist allowing businesses to host their own eRA on a “pay as you go” basis to procure goods and services. the government can save money in a big way. railways and oil and gas. The small sample size and case method approach limits the ability to generalize the ﬁndings. whether suppliers of an early adopter. Research may be carried out using speciﬁc cases to study eRA practices at ﬁrm level in detail. labor costs being lower in India. . (2008). supplier and buyer e-readiness and e-sourcing tools and expertise act as moderators are in agreement with Amelinckx et al. However. By adopting eRA (as recently done in ONGC pilots). having been exposed to this type of sourcing for . With the emergence of web-based tools. eRA account for around 10 percent of total corporate purchases in India which is slightly lower than found in existing literature. Another area to explore is the supplier perspective as they are often negatively inclined toward eRA. Our study reveals a few areas of concern as well. the potential for cutting down costs in labor is less than a market like the USA and Singapore. However. has now become a necessary enabler for aligning business in both government and corporate sectors. comparative work may be undertaken in different international contexts. online transaction security has become an important area of concern. and continuously experiment with improved eRA designs. (2007) ﬁnd that full-service (third party) eRA are as effective as in-house eRA. To succeed today and to pave the way for a better future. Using a third party or conducting eRA in-house may also be studied in detail. Codes of conduct and guidelines for eRA need to be formulated by concerned stakeholders and put into practice. work for gaining potential suppliers’ conﬁdence through transparent trustworthy ethical practices. Technology. Based on our study. This research opens the way for in-depth studies of some of the above areas of concern. The reasons could be lesser economies of scale and higher buyer’s switching inertia. The government of India should take a cue from the US and Singapore governments which have adopted e-sourcing in a major way.. Further. our study ﬁnds that this may not always be true and effectiveness is actually context-dependent. We ﬁnd that high switching costs inhibit the readiness of ﬁrms to invite a large enough number of suppliers to participate in eRA. the declining level of supplier participation reported in literature was not observed in our study. This is an inductive piece of research and it is important to recognise that only analytical generalisation is claimed rather than any statistical generalisation. Managerial implications from eRA 529 Presently. ﬁrms in India need to create strong linkages with their supply chain partners. it will be interesting to investigate how their opinion changes over time. The reasons could be attributed to the present market and business conditions in an emerging economy. i. However. Hur et al. some emerging trends can be discerned. Indian government has large monoliths in sectors such as armed forces. Our ﬁndings that the supply market competition.
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S. Harvard Business Review. pp.ac. J. 30 July. 4. 4 No. Vol. 32 No.S.com/reprints . Business Horizons. Indian Institute of Management. 11-26. Boston MA. Kulp. IJPDLM.L. 3rd ed. and Carr.. L. pp. D. “Information behaviour in e-reverse auctions”. R. 1. Supply Chain Management: An International Journal. A. Vol. “Setting the stage for successful electronic reverse auctions”. 10 No.ac. 10 No. Lucknow (India). He is also on the scientiﬁc advisory board of Journal of Remanufacturing. 1.M. Smeltzer. His major areas of interest are operations strategy. (2008). pp. risks and conditions for success”. Working Paper IIML WPS 2009-10/6.K..A. IJMTM. (2005). Lucknow. 5. pp. 2. and Mabert. and Giunipero. 1. Sehwail.K. research and industry and has published extensively in reputed refereed journals such as Omega. pp. Harvard Business School Case. (2007). 71-91. “Online reverse auctions: common myths versus evolving reality”. 1. 47-52. Vol. 13 No. T.in/. Vol. 9-105-032. (2006). He is a Graduate in Electrical Engineering from the Institute of Technology. (2007). Srivastava can be contacted at: samir@iiml. BHU. Samir K. Schoenherr. 50 No. and Randall.Kraljic. pp. Business Horizons. S. 8 No. About the author Samir K. CA. Pearcy.iiml. Srivastava. Vol. (2004). Ingalls. Journal of Purchasing & Supply Management. R. 498-520.in Managerial implications from eRA 531 To purchase reprints of this article please e-mail: reprints@emeraldinsight. Wagner. HR-operations interface. “Reverse auctions in industrial marketing and buying”. “Purchasing must become supply management”. International Journal of Services and Operations Management. 26-34. pp. International Journal of Manufacturing Technology and Management.R. Srivastava.P. Yin. “eRA: reactions and tactics of suppliers and their countermeasures”. T. Case Study Research. Vol. Lucknow. Losch. His papers have received “Best Student Paper Award” and “McGraw Hill Publishing Best Paper Award”. (2008). “Supply auctions and relational contracts for procurement”.M. Product No. Vol.emeraldinsight. (2007). (1983). pp.com Or visit our web site for further details: www. etc. Tunca. Harvard Business School Publishing. 20 No. 4. S. Journal of Enterprise Information Management.C. S. “Radio frequency identiﬁcation technology in retail outlets: Indian scenario”. 43-67. (2002). S. Smeltzer. and Carr. Design and Methods. reverse logistics and sustainable supply chains. 5. samir/. “Electronic reverse auctions – promises. and Lambert. Further details are available at: http:// ganga. D. 45 No. (2003). Manufacturing & Service Operations Management. 373-84. A. P. Thousand Oaks.R. A. L. and Schwab. A.G. (2003). management of technopreneur-owned ﬁrms. IJMR. Procurement at Betapharm Corp. 61 No. manufacturing excellence.A.. T. Srivastava is an Associate Professor in the area of Operations Management at the Indian Institute of Management. pp.B.K. (2009). Vol. retail operations. “Business-to-business online reverse auctions: a literature review and a call for research”. 6. Vol. and Pratt.I. L. Industrial Marketing Management. 109-17. “Using e-procurement applications to achieve integration: what role does ﬁrm size play?”. 447-64. has an MBA in Finance and is a Fellow of the Indian Institute of Management. V. Vol. 481-8. Sage. TQM&BE. pp. He has about two decades of experience in teaching. L. and Zenios.H.
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