State Purchasing
NASPO
Reverse Auctions in Florida
April 5, 2004
Reverse Auctions in Florida
April 5, 2004 Agenda
Welcome / Overview
Recent Developments in Florida
MyFloridaMarketPlace Experience
Common Benefits and Risks
Using Reverse Auctions Wisely
Contact and Further Information
2
Reverse Auctions in Florida
Florida’s Use of Reverse
Auctions Has Resulted in
Award-Winning Initiatives….
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e-Procurement Benefits
(Minahan & Degnan, 2001)
Indirect Procurement
(non-production goods &
services – office supplies,
printing, advertising and
casual labor)
Direct Procurement/
Supply Chain
(organization &
management of raw
materials, parts &
assemblies)
Sourcing
(identification,
evaluation, negotiation of
products and supplies for both
the indirect and direct supply
chain)
Price reduction
Visibility of customer
demand
Unit cost reduction
Improved contract
compliance
Visibility of supply chain
capacity
Enhanced decision making
Shortened cycle times
Accuracy of production
capacity
Improved market intelligence
Reduced admin costs
Reduced inventory/op
costs
Enhanced inventory mgt Shortened proc cycle
times
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Reverse Auction Overview
There are several different varieties of auctions, with a key differentiator being the way in
which information is revealed around price between the bidders.
Reverse Auction
Major Types of Reverse Auctions
Type
Bid
Price
Description
Effect on
Time
Visible
Price
Price is know by the all
the participants but the
identity of the other
bidders is unknown
Time
constrained
(minuteshours)
Ranked
Bidder
Price is not shown to
the bidders. Instead
they are only aware of
where they are in order
relation to the “winner”
Time
constrained
(minuteshours)
Time
In reverse auctions, prices decrease over
time.
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Reverse Auctions in Florida
April 5, 2004 Agenda
Welcome / Overview
Recent Developments in Florida
MyFloridaMarketPlace Experience
Common Benefits and Risks
Using Reverse Auctions Wisely
Contact and Further Information
7
Recent Developments in Florida
• In 2000, Florida enacted a legislative package
– Advancing electronic commerce (Uniform Electronic
Transaction Act)
– Creating State Technology Office
– Authorizing “on-line procurement” (reverse auctions)
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Florida’s Early Experience
• Pilot Program with FreeMarkets in 2001
• Four Reverse Auctions
–
–
–
–
Paper
Lamps
Lighting Fixtures
Computers
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Reverse Auctions in Florida
April 5, 2004 Agenda
Welcome / Overview
Recent Developments in Florida
MyFloridaMarketPlace Experience
Common Benefits and Risks
Using Reverse Auctions Wisely
Contact and Further Information
10
MyFloridaMarketPlace Project
• Started October 2002
• Accenture implementing Ariba tools
• Two reverse auctions to date
– Office Consumables (July 2003)
– Paper (March 2004)
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MyFloridaMarketPlace
Office Consumables Sourcing
Phase 1
PreQualification*
• Posted Phase 1 ITB instructions on VBS
• Used Intent to Participate form
• Contained various critical and information only questions, potential market
basket items, geographical capability
• Q&A for 95 questions (VBS posting of answers)
•
•
•
•
•
Phase 2
Reverse
Auction
(2 Stages)
•
•
•
•
17 vendors pre-qualified from Phase 1
Conducted within MyFloridaMarketPlace Sourcing Tool
Provided Phase 2 ITB instructions, SLAs, general conditions, forms
Offline bidder pricing tool provided to bidders
Preview period of 2 weeks to allow bidders to download documents and price
items
35 questions were submitted via the Q&A board
Official answers posted on Sourcing tool as addendum
Optional bidder training sessions and mock reverse auction events provided to
help vendors learn how to use Sourcing tool
After close of Reverse Auction event, second stage within Sourcing required
bidders to upload final detailed item pricing to support final bid price entered in
the live auction
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MyFloridaMarketPlace
Office Consumables – Reverse Auction Results
Eleven vendors entered a combined 232 bids over the 132 minutes duration of the Office
Supplies & Toner Cartridges event.
Note: Bidders names excluded until award finalized.
Source: MyFloridaMarketPlace Sourcing Tool.
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MyFloridaMarketPlace
Office Consumables – Reverse Auction Results
For the Paper and Non-Printed Envelopes event, 106 bids were entered by 9 vendors over 74
minutes time period.
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MyFloridaMarketPlace
Office Consumables – Reverse Auction Results
Lot A –
Office Supplies &
Toner Cartridges
Lot B –
Paper & Non-Printed
Envelopes
$51.5MM
$8.7MM
# of Vendors Invited / Participated
15 / 11 (73%)
16 / 9 (56%)
Initial vs. Extended Duration
0:45hr / 2:12hr
0:45hr / 1:14hr
232
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Summary
Spend Base Line (3-Year Value)
# of Bids
Spreadsheet Training
34 People
Practice / Mock Auction Training
28 People
Potential 3-Year Savings $
$16.8MM
$1.5MM
Potential 3-Year Savings %
33%
17%
Note: MM = Million
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Reverse Auctions in Florida
April 5, 2004 Agenda
Welcome / Overview
Recent Developments in Florida
MyFloridaMarketPlace Experience
Common Benefits and Risks
Using Reverse Auctions Wisely
Contact and Further Information
16
Reverse Auctions
Win-Win Benefits (Ga. Pacific)
• Speed
• Unification
• Wider Playing Field
• Continuous Improvements
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Reverse Auctions
Possible Risks (Ga. Pacific)
• Transparency may weaken supplier’s response or
buyer’s ability to negotiate
• Technology drives rather than enables
• Non-price uncertainties
• Deviation from strategy
• Technical meltdown
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Reverse Auctions in Florida
April 5, 2004 Agenda
Welcome / Overview
Recent Developments in Florida
MyFloridaMarketPlace Experience
Common Benefits and Risks
Using Reverse Auctions Wisely
Contact and Further Information
19
Using Reverse Auctions Wisely
(M. Sawhney, 6/03)
• Think beyond price
• Use where appropriate
• Understand hidden costs
• Follow the Golden Rule
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Using Reverse Auctions Wisely
Think Beyond Price
• Price is only one element of best value
• Quality, reliability, value-added services
• Better tools promise to move toward multiattribute auctions
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Using Reverse Auctions Wisely
Use Where Appropriate
• Buyer indifference toward sellers
• Sufficient number of quality sellers (3-10)
• Sufficient volume
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Using Reverse Auctions Wisely
Hidden Costs
• When to measure (when auction closes vs.
at the end of the transaction)
• Apparent savings can evaporate quickly
(indirect costs [e.g., switching], errors in
supplier data, post-auction negotiation,
changes in specs or quantities)
• “Loss leader” bidders trying to make up
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Using Reverse Auctions Wisely
Follow the Golden Rule
• Preserve important supplier relationships
• Avoid fostering desire to retaliate
• No advantage to putting suppliers out of
business
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Reverse Auctions in Florida
April 5, 2004 Agenda
Welcome / Overview
Recent Developments in Florida
MyFloridaMarketPlace Experience
Common Benefits and Risks
Using Reverse Auctions Wisely
Contact and Further Information
25
Contact and Further Information
Fred Springer
Director, State Purchasing
Florida Dept. of Management Services
Fred.Springer@MyFlorida.com
(850) 487-1898
Vendor training guides available at
http://marketplace.myflorida.com
VendorHelp@myfloridamarketplace.com
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