Chapter 4

Question 1

Potential Benefits of InformationSystems Technology

Answer 1

• Cost reduction and efficiency gains
• Data accessibility
• Speedier communication
• Dedicate resources to strategic issues
• Data accuracy
• Systems integration
• Monetary control

Question 2

Four Types of EDI

Answer 2

• Value Added Network (EDI VAN)
• Internet EDI or AS2 (Applicability Statement 2)
• Web EDI
• Outsourced EDI Services

Question 3

Three Types of e-Auctions

Answer 3

• Open offer negotiations
  
  • Suppliers select items for bidding and enter as many offers as they want until closing
  • Names not disclosed to other bidders
• Private offer negotiations
  
  • Suppliers review offers from the buying organization that includes target price and quantity
  • Suppliers select item(s) and offer prices
  • Status levels: accepted; closed; BAFO; open
• Posted price
  
  • Buyer posts price and first supplier that meets price is accepted

Question 4

When to Use Reverse Auctions

Answer 4

• Clearly defined specifications, including technological, logistical and commercial requirements.
• A competitive market with qualified suppliers willing to participate. Typically, at least three suppliers are required. More than six suppliers may add unnecessary costs and complexity.
• An understanding of the market conditions in order to set appropriate expectations for a reserve price.
• Buyer and seller familiarity and competency using the auction technology.
• Clear rules of conduct. For example, conditions for extending auction length and award criteria.
• The buyer is prepared to switch suppliers if necessary.
• The buyer believes that the projected savings justify a reverse auction

Question 5

Potential Buyer-Related Issues with Reverse Auctions

Answer 5

• Buyer knowingly accepts bids from suppliers with unreasonably low prices.
• Buying firm submits phantom bids during the event to increase the competition artificially.
• Buyer includes unqualified suppliers to increase price competition.

Question 6

Potential Supplier-Related Issues with Reverse Auctions

Answer 6

• Supplier collusion.
• Suppliers bid unrealistically low prices and attempt to renegotiate afterwards.
• Suppliers “bird watch” or participate in the event but do not bid to collect market intelligence. A rule requiring bids before entering the auction may preclude this behavior.
• Suppliers submit bids after the auction event in an attempt to secure the business.

Question 7

Potential Problems with Using Online Auctions

Answer 7

• The risk of interrupting good supplier relationships.
• The risk of developing a reputation for aggressive price-buying over other considerations.
• The costs of running the auction versus expected savings.
• The cost savings potential of auctions versus sourcing processes such as RFP/RFQ and negotiation.
• Significant up-front preparation and cost required compared to determining price through an RFP/RFQ.
• Actual price when unforeseen costs are factored in versus bid price.