Reverse Auctions -- Sold to the Lowest Bidder
"Typically what happens is a consultant sells the concept to a CFO, who usually does not have a lot of knowledge about the printing business. The CFO is naturally very excited by the reported savings. Without having a thorough understanding of all the implications of how a reverse auction impacts that transaction, the company exec will issue an edict that the program be instituted," Grossman explains.
Printing is an easy target because it tends to be a big budgetary item. The custom manufacturing nature of printing makes it difficult to challenge the analysis of potential savings, Fogel says.
"It's very easy for consultants to claim they are going to save a company anywhere from 10 to 50 percent of its total print expenditure because it's virtually impossible to establish a meaningful benchmark. The consultant will issue a big RFI to a prospect's core group of printers, but also throw a bunch of others into the mix to establish a baseline for pricing," he explains. "The savings often are overblown because it is a flawed model."
The biggest single flaw in the process, Grossman contends, is that the specs have to be set before the auction begins. "Real savings come from collaboration at the conception stage of the project, where the printer can optimize the project based on the best manufacturing processes," he says. "The job ends up not being what was specified anyway, so additional costs start to pile up. The whole process is compromised in the end."
The process itself can be disingenuous since the rules for auctions typically specify that print buyers are not obligated to award jobs to the lowest bidder, Grossman points out.
"What often happens is that the low bidder isn't a client's regular supplier. The buyer then goes back to one of its regular printers and says, 'We'd really love to give you the job, but we got a bid that's 30 percent below yours. If you can meet the price, or at least come close, we'll give you the job.' The supplier that drove down the price doesn't end up being the beneficiary."