By JIM HEADLEE
Published November 6, 2009: Community College Times
Uncertain economic times have forced businesses, government agencies and academic institutions across the country to tighten budgets and search for new cost-saving strategies.
To stay on the cutting-edge of technology and progressive business, a growing number of schools and higher education institutions are looking into the benefits of reverse auctions for procuring goods and services.
In the past, organizations in the public sector have practiced procurement through more traditional means, like one -price-per-supplier response. But today’s procurement strategies don’t always adhere to best practices that can help organizations drive prices closer to market value. While the concept is not a new one, many organizations have been lax to adopt a procurement platform that features reverse auctions as its core component.
Reverse auctions fill a much-needed void in the procurement process by offering visibility for the purchasing organization, true competition between suppliers, standardized buying methods and reduced overall spending. Implementing a reverse auction platform can greatly reduce both purchasing costs and transaction processing costs.
Research by PriceWaterhouseCoopers and Killen & Associates indicates reverse auctions can log a 5 percent to 10 percent savings in purchasing costs while increasing profit margins by 28 percent to 50 percent. Aberdeen Group reports that with e-procurement, transaction processing costs drop by as much as 70 percent.
To leverage the most efficient technologies, community colleges looking to use reverse auctions for purchasing should consider an e-procurement platform. E-procurement offers organizations significant advantages over traditional platforms, including greater visibility for the purchasing organization, real-time updating, a dynamic and time-efficient experience and secure management—all while promoting increased competition between suppliers, ultimately driving down prices for goods and service.
In order to successfully integrate a reverse auction/e-procurement platform, community colleges must take three key factors into account:
Full support within the buying organization. In many cases, multiple parties at a community college are involved in the purchasing process. Making sure all levels involved in the decision embrace the strategy—from board members to directors to central purchasing to the department requesting the goods/services—is crucial.
Open specifications allowing for competition between multiple suppliers. Sometimes procurement specifications are developed in a way that significantly favors one supplier. In order to promote true competition, the reverse auction process should only take place if the purchasing process includes open specifications revolving around factors such as quantity needed, delivery expectations, peripheral costs, payment terms and discounts, and ceiling/floor guidelines.
Willing participation from a base of multiple, educated suppliers. To ensure a truly competitive environment, many e-procurement services practice strategic sourcing, a process that is difficult for community colleges to undertake on their own time. More experienced reverse auction platform providers have a diverse base of suppliers with which they have established relationships and notify of upcoming bid opportunities. Some providers even go the extra mile, exhausting every possible channel for finding new suppliers to compete for the business.
As an example of how the reverse auction process can benefit the education industry, San Diego State University (SDSU) worked with an e-procurement services provider on two bids. In the first bid, four suppliers competed to provide the institution with HP Blade Servers and backup software. The bid, taking place earlier this year, lasted a total of one hour and seven minutes and logged 128 unique bids. At the conclusion of the event, SDSU had saved $18,000 against budget.
In May, the institution’s second bid returned similar results. Seven suppliers competed to provide the university with new tables and chairs for the university library. First and second place suppliers were only separated by a margin of .31 percent. The lower the percent separation, the stronger the indicator that the university achieved market value for the procured goods.
SDSU provides a compelling argument for why more institutions should consider a reverse auction platform to obtain goods and services. As technological and procurement landscapes continue to evolve, the education industry needs to be at the forefront of these niches.
Headlee is CEO of eBridge.
In the county’s second event with eBridge, four suppliers competed for the purchase of one rubber tire wheel loader. The one hour, five minute event yielded 85 total bids with 39 first place turnovers and 58 time extensions, allowing the four suppliers to compete in real-time for the contract.
During the event the average bid drop was $2349 per bid and at the conclusion of the event first and second place bidders were separated by only $1.00!
The county achieved approximately a $10,000 savings on the wheel loader, and was assured it received true market value with the $1 differential between first and second place.
BidBridge was approached to run the fuel bid for Greater Clark County Schools for the second year in a row.
In this year’s event four suppliers placed bids for a two year contract to provide diesel and unleaded gas to the school district. Specifically the contract was for 58,000 gallons of unleaded and 120,000 gallons of diesel fuel.
The same four suppliers competed on both line items, both yielding over 50 bids, 34 time extensions and less than 2% between first and second place bidders.
As a comparison to last year’s contract pricing achieved through BidBridge, Greater Clark County Schools paid 0.1475 per gallon for both the diesel and unleaded fuel. For the 2009-2011 contract, low bids came in at 0.0825 for unleaded and 0.0889 for diesel fuel, almost half of the price from last year.
While fuel prices have significantly decreased over the past year, BidBridge helped this school district achieve true market value for the purchase of the fuel for the next two years.
ITMO Attains Contract for State CDL Manual and Driver Handbooks at True Market Value
COLUMBIA, S.C., Nov. 10– When South Carolina’s Information Management Technology Office needed help procuring a contract for Commercial Driver’s License (CDL) manuals and driver handbooks, the State purchasing office knew exactly who to approach.
Since establishing a state contract in July 2009, the State of South Carolina has engaged Louisville-based BidBridge, a proven eProcurement services provider for the public and private sectors, for large capital expenditures. The successful events have yielded massive savings against budget.
To help organizations get the best price possible, BidBridge creates a dynamic purchasing environment by offering a secure, real-time electronic sealed bidding platform that allows suppliers to place multiple bids. The ensuing bid process provides entities with an alternative to the public sector’s traditional process of a one price per supplier response.
The 55-minute bid event took place between three suppliers, logging 30 total bids, 11 first place turnovers and 21 time extensions. First and second place vendors were separated by a mere .03 percent, indicating market value had been achieved on the new printing contract.
Since entering in to a state-wide contract with BidBridge, the State of South Carolina has saved 26 percent overall against budget for the events run. The five events have been spread across three other state entities: the Department of Motor Vehicles (DMV), Department of Transportation (DOT) and the state’s public television station, ETV.
“BidBridge’s work with the State of South Carolina stands as a testament to the countless applications reverse auctions have for the public sector,” remarked BidBridge CEO Jim Headlee. “Especially in a shaky economic rebound, making the most of public money is an important step for public entities towards a more efficient allocation of tax dollars.”
This Oklahoma town engaged BidBridge for the purchase of three dump trucks. Five suppliers participated in the event.
The event lasted 54 minutes yielding 72 bids, 15 first-place-turn-overs. The clock extended 22 times, allowing the five suppliers to continue to submit competitive pricing. At the conclusion of the event, first and second place bidders were separated by 0.01%, indicating to the city that true market value for the dump trucks had been achieved.
In Northern Kentucky Water District’s first event with BidBridge, eight suppliers competed for the purchase of the following three chemicals:
copper sulfate
potassium permanganate
sodium hypochlorite
The suppliers had the opportunity to place bids for each chemical on a 6 month and one year contract. Due to the fluid price of chemicals, the flexibility of the BidBridge platform allowed the buyer to receive pricing from suppliers on separate line items.
The bid lasted one hour, four minutes. The most competitive line item was the sodium hypochlorite on a 6 month contract. 110 bids were placed for the chemical, yielding 35 first-place-turn-overs, with on .047% separating first and second place.
The buyer was pleased with the event and is already looking to run additional chemicals with BidBridge.
A medium sized city partnered with BidBridge to purchase a fire apparatus. Four suppliers competed for the business.
The bid lasted one hour, two minutes. 72 bids were placed among the four suppliers, yielding 34 time extensions and 27 first-place-turn-overs. First and second place bidders were separated by a mere 0.06%, indicating true market value for the fire apparatus had been achieved.
During the bid event, the BidBridge operations coordinators monitored the bid closely to ensure integrity of the bid.
The approximate savings on the fire apparatus was 18%.
A Florida city engaged BidBridge to establish a one year contract price for hauling 19.25 million gallons of fertilizer and class AA residuals from two wastewater reclamation plants.
The incumbent supplier of the hauling services approached City officials and urged him to run the contract through the BidBridge process.
Seven hauling service providers competed in the one hour, 41 minute event. A total of 250 bids were placed by the seven suppliers throughout the course of the event. First place changed hands 57 times and the clock extended 86 times, allowing suppliers to continue to place residual lowering bids until the cost for hauling the materials had reached true market value.
At the conclusion of the event, the city saved 40% versus last year’s contract amount!
The Washington, DC metro area sanitation commission engaged BidBridge’ reverse auction expertise for the purchase of 15 chemicals to treat water and wastewater in the Washington DC metro area. 15 suppliers competed on a variety of chemicals.
Some of them chemicals bid are as follows:
Aluminum sulfate
Caustic soda
Chlorine
Ferric chloride
Hydrofluosilcic acid
Phosphoric acid
Potassium permanganate
Powder activated carbon
Sodium bisulfate
Sodium hypochlorite
Sulfur dioxide
Sulfuric acid
The bid lasted three hours, 22 minutes, with one chemical producing over 180 bids, causing the event to continue for several hours. However, the competition among suppliers led to 97 first place turnovers and only 0.46% between the first and second place finishers, indicating true market value had been achieved.
As any buyer knows, achieving true market value is crucial in the purchase of chemicals because of the volatility of the market.
The state engaged BidBridge for the purchase of a 5 year contract for the printing of the State’s CDL Manual and Driver Handbook.
Three suppliers participated in the 55 minute event. A total of 30 bids were placed, yielding 11 first place turnovers and 21 time extensions. First and second place vendors were separated by only 0.03%, indicating true market value for the print contract had been achieved.
The total contract value came in 49% lower than the budgeted value, delivering significant savings for the state’s transportation department.