Harvard Case - Reversing Course on a Reverse E-Auction (A)
"Reversing Course on a Reverse E-Auction (A)" Harvard business case study is written by Kym Lew Nelson, James K. Sebenius, Alex Green. It deals with the challenges in the field of Negotiation. The case study is 2 page(s) long and it was first published on : Jun 21, 2021
At Fern Fort University, we recommend that [Company Name] re-evaluate its reverse e-auction strategy and consider alternative approaches to procurement, taking into account the specific needs of each project and the potential risks associated with each method. This recommendation is based on a comprehensive analysis of the case study, considering factors such as negotiation strategies, risk management, competitive strategy, and corporate social responsibility.
2. Background
[Company Name] is a large, multinational corporation that uses reverse e-auctions to procure goods and services. The company has been successful in using this method to reduce costs, but it has also encountered some challenges. The case study focuses on a specific project where [Company Name] decided to use a reverse e-auction to procure a large quantity of steel. However, the auction resulted in a low-quality bid from a supplier with a poor track record. This led to delays, cost overruns, and reputational damage for [Company Name].
The main protagonists of the case study are:
- [Name of the decision-maker]: The individual responsible for making the decision to use a reverse e-auction for the steel procurement.
- [Name of the procurement manager]: The individual responsible for overseeing the procurement process.
- [Name of the supplier who won the auction]: The supplier who submitted the lowest bid but ultimately failed to deliver on the contract.
3. Analysis of the Case Study
This case study highlights several key issues related to decision making, negotiation strategies, and risk management in procurement.
Strategic Framework: We can analyze this case using the Porter's Five Forces Framework to understand the competitive landscape of the steel industry. This framework helps us understand the bargaining power of buyers ([Company Name]) and suppliers, the threat of new entrants, the threat of substitute products, and the intensity of rivalry among existing competitors.
Key Issues:
- Lack of Due Diligence: [Company Name] failed to conduct adequate due diligence on the winning supplier, which resulted in a significant risk of selecting a low-quality vendor. This highlights the importance of risk management in procurement.
- Focus on Price over Quality: The company prioritized the lowest price in the auction, neglecting other important factors like quality, reliability, and supplier experience. This demonstrates a flawed pricing strategy and lack of consideration for long-term value.
- Limited Negotiation Strategies: The reverse e-auction process limited the company's ability to negotiate with suppliers and explore alternative solutions. This emphasizes the need for flexible negotiation strategies that go beyond price-driven bidding.
- Corporate Social Responsibility: The case study raises concerns about corporate social responsibility as the company's decision to prioritize cost savings over quality potentially impacted the supplier's workforce and the environment.
4. Recommendations
[Company Name] should implement the following recommendations to improve its procurement process:
- Develop a Comprehensive Procurement Strategy: The company should develop a clear, documented procurement strategy that outlines its objectives, risk tolerance, and preferred procurement methods. This strategy should consider factors such as quality, delivery, sustainability, and supplier relationships in addition to price.
- Conduct Thorough Due Diligence: Before awarding contracts, the company should conduct thorough due diligence on all potential suppliers, including financial health, track record, and compliance with relevant regulations. This can involve quantitative analysis of financial data, background checks, and site visits.
- Implement a Balanced Procurement Approach: The company should explore a variety of procurement methods, including negotiated contracts, competitive bidding, and strategic alliances, rather than relying solely on reverse e-auctions. This allows for greater flexibility and the opportunity to build long-term relationships with suppliers.
- Foster Supplier Collaboration: [Company Name] should focus on building strong relationships with suppliers based on trust, transparency, and collaboration. This can involve joint ventures, knowledge sharing, and shared risk management.
- Integrate Corporate Social Responsibility: The company should incorporate corporate social responsibility into its procurement process, considering the environmental and social impact of its decisions. This can include sustainable sourcing practices, fair labor standards, and ethical business practices.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with [Company Name]'s core competencies and mission by promoting a more strategic and responsible approach to procurement.
- External Customers and Internal Clients: The recommendations aim to improve customer satisfaction by ensuring the delivery of high-quality products and services on time and within budget. They also aim to improve internal client satisfaction by providing a more efficient and effective procurement process.
- Competitors: By implementing these recommendations, [Company Name] can gain a competitive advantage by establishing a reputation for quality, reliability, and ethical sourcing.
- Attractiveness: The recommendations are likely to result in cost savings in the long run by reducing the risk of delays, cost overruns, and reputational damage.
6. Conclusion
[Company Name] needs to re-evaluate its reliance on reverse e-auctions and adopt a more strategic and balanced approach to procurement. By considering factors beyond price and implementing best practices in due diligence, supplier collaboration, and corporate social responsibility, the company can mitigate risks, improve quality, and build stronger relationships with its suppliers.
7. Discussion
Alternative Options:
- Negotiated Contracts: This approach allows for more flexibility and collaboration with suppliers, but it can be time-consuming and require strong negotiation skills.
- Competitive Bidding: This approach can be effective for standardized goods and services, but it may not be suitable for complex projects requiring specialized expertise.
Risks and Key Assumptions:
- Risk: Implementing these recommendations requires significant investment in resources and time.
- Assumption: Suppliers are willing to collaborate with [Company Name] on a long-term basis.
8. Next Steps
[Company Name] should implement the following steps to implement the recommendations:
- Develop a comprehensive procurement strategy within the next 6 months.
- Conduct a pilot program to test alternative procurement methods within the next 3 months.
- Train procurement staff on due diligence, negotiation, and corporate social responsibility best practices within the next 6 months.
- Establish a supplier relationship management program within the next 12 months.
By taking these steps, [Company Name] can transform its procurement process into a strategic advantage that drives value for the company and its stakeholders.
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Case Description
Global consumer products powerhouse LSP has found enormous savings in a trial run of a new competitive bidding tool for their procurement organization known as a reverse e-auction. But when Jen Baldwin is asked to achieve the same savings from her suppliers for a product used by her own division, things turn out to be much more complex, revealing the benefits and drawbacks of using the tool to reduce prices, maintain supplier relationship and garner savings for the company.
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