Friday Rant: Reverse Auctions Have Become the Aero-Bars of Sourcing

Many years ago, before I developed a need for responsibility and such, I took great pleasure in doing wild and crazy things on a 12-speed bike (actually, at the time, they had 14 speeds -- don't ask me what they're up to now). I loved nothing more than rounding corners at 30 MPH in criterium races as my mother sat on the sidelines with what I'm sure was a look of outright death on her face as her only son sprinted to the front of the pack. And that's what happened when things went right. Usually, the outcome was crashing hard in one of the corners -- ideally not in front of her -- tearing up yet another jersey in the process. I quickly learned as I got more and more into the sport that the jokes I had to contend with in high school for shaving my legs would be easy to deal with compared with picking the gravel from rather superficial flesh wounds in my legs on all too frequent a basis.

Between the ages of sixteen and eighteen, I was a fearless Category 3 USCF junior rider (translation: pretty serious, pretty strong, pretty dumb). It was actually a great sport for a teenager to get involved in because it introduced both individual and team aspects of competition while also helping testosterone-filled boys get their speed kicks out on a two wheeler versus their parent's Acura (though I do remember topping the family Legend out at around 125 while racing to a time trial one morning that I was late for). Speeding stories aside, right around the time that my interest in the sport took on a new level of enthusiasm, Greg Lemond, perhaps the last undisputedly drug-free superstar in the sport, did the impossible, overcoming a 50 second deficit in a very short time trial in the last stage of the Tour De France to upset a stereotypical Frenchman who had no idea what hit him (it was a Waterloo on two wheels). But it was not the manner in which he did it that matters. It was the how. In this regard, Lemond embraced a brand new technology at the time better known as aero-bars (you can watch Lemond in action in the final stage, ducked behind his aero-bars, here). Little did he realize at the time that his embrace of these curious looking things would usher in an era where anybody who bought a road bike (and some mountain bikes) would feel compelled to buy a pair in hopes of going faster.

But as any serious racer will tell you, 99% of the idiots who ride with aero-bars have no idea how to handle a bike with them on. Sure, they might add a MPH or two to your time trial speed, but they present so many new dangers, nearly all riders should never consider getting them unless they have years of racing and time trialing experience already. Not only do they change the center of gravity on the bike, pushing the rider forward and making the front-end unstable, they do not allow for breaking and shifting. The results were pretty easy to predict. People crashed hard all over the place and the great majority of those who embraced aero-bars had no idea about safety etiquette involved in using them (e.g., never using them while riding in a pace-line or while next to another rider).

Even though my serious cycling years are now behind me, I still spend a couple of hours every weekend dodging crazy aero-bar riders on the lakeshore path in Chicago. One hazy day in late July, while I was out on an early morning marathon training run, some nutcase almost ran me into the lake. And this got me thinking. Aero-bars are to cycling what reverse auctions are to sourcing. While under ideal conditions aero-bars can give you a significant boost and advantage, the way most people actually use them can be dangerous and potentially significantly damaging not only to themselves, but those around them. Which is the exact same thing when it comes to how a great majority of companies deploy self-service reverse auctions.

An old friend and FreeMarkets colleague of mine, David Clevenger, sent me a note the other week. I've copied it here with his permission:

"In my current capacity I deal with a large number of suppliers, each of whom shudders when I mention my former affiliation with FreeMarkets. A recent discussion with a large packaging supplies distributor really got me thinking. They mentioned, as so many suppliers do, their hatred for reverse auctions. They discussed their broad-based efforts to resist participation and detailed the flaws that they saw in the model. In listening to them outline their concerns with the approach, they mentioned things like pre and post bid negotiations, the failure to adequately specify requirements heading into the bid, and the inclusion of unqualified competitors to drive market behavior.

It occurred to me that the problem with reverse auctions may be the same as with any powerful weapon in the wrong hands. All of the concerns addressed by this supplier and so many others before him were not issues that came up during the fully managed projects executed by FreeMarkets and our competitors. They were, however, indicative and all too common outcomes of the "QuickSource" projects run by our users. My question to you is, did the self-service model kill the reverse auction?"

As I was recovering from my mishap along the lake, Dave's email immediately came to mind. Yes, self-service did kill the reverse auction in a range of verticals, leaving a horrible taste in many supplier's mouths. But this makes sense. When you put a powerful tool into the hands of someone without the requisite experience to know when to use it, how to train those involved, what rules to enforce and apply in the context of the environment and without a complete understanding and empathy of the device's impact outside of an organization, bad things are bound to happen. As they have with reverse auctions in many cases.

Here are just a few examples I'm sure you've heard of. For one, consider the case of a company that communicates that "low-bid" will win, but then chooses to award business to a supplier that came in second or third place. Or what about an all-to-typical situation when an incumbent supplier sharpens their pencil just enough to keep the business outside of the auction after half-a-dozen potential suppliers have collectively invested hundreds of hours in reviewing the bid package only to learn they never really had a chance. In a full-service auction environment, these things are much less likely to happen given the expertise involved in running them fairly and effectively.

I don't just blame companies who have been cheap in not wanting to hire someone like Ariba, Emptoris, AT Kearney Procurement Solutions, BravoSolution, Iasta, Paladin, E-Three or others to do full-service events for them. Those who sell the software tools share in the blame here. It's like the suburban bike store that sells a pudgy 40 year-old lawyer a $5,000 Seven Cycles road bike with aero-bars and tells him to go tear it up. In this example, as is the case with many reverse auction license holders, the best we can hope for is that said licensee hangs up his titanium steed in the garage and only takes it out on the rarest of occasions. Fat chance.

Jason Busch

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