"Supply Chain Management: Leveraging
Reverse Auctions", presented by Dr.
Darren Prokop, Professor of Logistics,
University of Alaska Anchorage.
What is supply chain management?
It is the linkage of organizations in
order to meet some strategic goal.
Linkages could be achieved through
contractual relationships, or
through mergers and acquisitions.
Linkages could be more informal and
involve a joint venture or
strategic alliance covering
a more limited business activity.
In any case, the intent of supply
chain management is to foster trusting
relationships whereby the partners
are more valuable together than apart.
If a firm is looking for a vendor to
supply an input for its production
of a good or service, it certainly
wants to find the best one it can.
Mutual trust can be established
through a negotiation of terms and
codified in a legal contract.
But this presupposes that the vendor
in question is indeed the best one.
If there are many vendors from which
to choose, how can the firm best devote
its limited time and money to finding
the best supply chain partner?
Two alternatives involve, one, request for
a business proposal or two,
conduct a reverse auction.
Each of these options has its place
in supply chain management, and
each has its drawbacks.
Yet two supposed drawbacks to reverse
auctions are that they are complicated and
Ironically, these two drawbacks can
apply just as well to requests for
What is misunderstood is that under
the right conditions, reverse auctions
are more objective and can foster
stronger supply chain partnerships.