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March 30, 1999

9 Min Read
Online bidding:  An opposite view

The advent of online bidding has created mixed feelings among molders and moldmakers and their OEM customer base. While some purchasing agents feel online bidding has made their professional lives easier, their mold and molded parts suppliers have expressed doubts about this new use of the Internet.

Glen T. Meakem, co-founder and CEO of FreeMarkets On-Line Inc. (Pittsburgh), wants molders and moldmakers to give companies such as FreeMarkets a chance to prove their value within the molding business. Meakem says there are several benefits to suppliers using the FreeMarkets real-time bidding system. First, it can provide no-risk access into large corporate accounts that have previously been inaccessible to molders or moldmakers for a variety of reasons. This means a cost of sales that is well below that of traditional sales methods.

Second, FreeMarkets prescreens or prequalifies molders and moldmakers with the OEM to ensure those who are qualified will be given the opportunity to quote against other molders and moldmakers of equal capabilities. At the same time, the screening provides real information about market competitiveness. “We’re trying to level the playing field for bidders, to create an apples-to-apples fair comparison of quotes,” says Meakem, noting their criteria for participating molders identifies those with superior management and quality-oriented, competitive organizations.

“We see our function as helping large industrial buyers make markets and find the highest quality suppliers who offer a fair price,” he explains.

The process FreeMarkets developed includes first looking at the OEM’s program to determine what is needed in terms of the product, then researching which molding or moldmaking companies can best provide what the OEM requires.

The goals of FreeMarkets are to establish a base of molders and moldmakers and to provide a complete set of information on these suppliers so a buyer can determine from the information to which players he wants to send an RFQ. “Once you’ve done that, you’ve created a group of molders who are capable of doing this business. Then it goes to online bidding,” explains Meakem.

Third, FreeMarkets provides a high-quality RFQ by helping the OEM write a detailed RFQ that covers all the specifics a supplier needs in order to provide a total cost bid. “We don’t say to suppliers, here’s a print, give us a bid,” Meakem explains. “We say here’s the print, here are the quality specs, the material specs, the delivery specs, everything. They don’t just look at a part; they see all the attendant criteria. We get all that out on the table so a supplier who might be new to the program understands completely what the OEM needs.” Poorly written RFQs, Meakem believes, result in poorly bid products, which, in turn, result in problems downstream for both parties.

FreeMarkets, according to Meakem, helps an OEM’s buyers improve their purchasing skills. “There’s a real need to improve purchasing skills and knowledge among buyers. They need to know their suppliers better. How good is the supplier’s quality? The processes? Are there other suppliers the buyer is not doing business with who might do the job better?”

Meakem believes these are critical aspects to the success of online bidding. “Online bidding without good purchasing practices, without prescreening and prequalification or without high-quality RFQs, won’t work.”

Benefits to Buyers

FreeMarkets claims it enables buyers to do what was not possible before: establish the true market price for custom-made components and materials. By combining extensive purchasing experience, commodity industry experience, and proprietary Internet technology, the company believes it is helping buyers source goods from high-quality suppliers at the lowest possible cost.

However, part of that equation is helping OEMs establish supply partners on a long-term basis and providing a way to benchmark pricing and costs. Meakem points out some OEMs have been dealing with molding suppliers for many years without ever knowing whether or not that supplier is the most efficient or cost-effective.

“If I’m a buyer for a manufacturer and I’m sourcing a group of components, my real goal should be to do business with only the most efficient suppliers,” says Meakem. “I want my competitors to do business with the inefficient molders. The challenge to me is to figure out who the really efficient suppliers are.”

Using FreeMarkets’ online markets, buyers can now determine the market and save money, insists Meakem. “We’re going in saying it is worth it to put analytical rigor into your purchasing process. The times are changing, and there is a better way to figure out who the better, more efficient suppliers are out there.”

Real-time, Online Bidding

Bidding online in a real-time situation is nearly identical to quoting and negotiating prices offline. “What you’re seeing online happening over the course of a few minutes happens offline, too, just not as fast,” Meakem says.

Online bidding has more benefits, however. “[Bidders] know the numbers and the bidding pattern of the particular company that bids against them,” he explains. “They can see the exact market dynamics, the competitive bid. This can be a benefit.”

Meakem says, just as in offline bidding, the low bidder doesn’t necessarily always get the work. In fact, in the injection molding business low bidders get the work only about 50 percent of the time. He denies OEMs award work blindly. “I’ve never seen a situation where a buyer hasn’t done a detailed qualification visit to determine a molder’s capabilities prior to actually awarding the job,” he adds.

FreeMarkets attempts to service the buyers as well as the suppliers and enforce a level of ethical conduct on both sides. Online bidding creates a greater transparency in the buyer’s actions as well as on the part of the bidders, thus putting more focus on what is going on in the trenches.

Win-Win for Everyone?

Meakem insists FreeMarkets is trying to create a situation that is fair to molders. “In an industry that is mature and has thousands of shops, we want the high-quality, efficient people to win,” he states. “There are a lot of low-quality, inefficient shops out there. We’re creating a more transparent market.”

Meakem admits the FreeMarkets system isn’t perfect, and he can find cases where an online bidding outcome hasn’t been good. However, he does believe the process Freemarkets has created is the wave of the future.

“[Molders] can direct their anger at us, but we’re trying to create a more efficient outcome; we’re trying to create a new channel for buying,” says Meakem emphatically. “They can’t stop this. Online bidding creates real-time benchmarking and raises the bar for everyone. Buyers must do a better job in their purchasing practices; moldmakers and molders must do a better job in their quoting practices. The best people win, and wealth is created. That’s the free market system.”

One Molder’s Reaction

Several molders have participated successfully in FreeMarkets’ bidding process and concur with Meakem that it is an excellent way to get their foot in the door of a new OEM. Bruce Grant, president of Engineered Polymers Corp. (EPC) headquartered in Mora, MN, says it gave them an opportunity to get new business they might not otherwise have had.

Three years ago, EPC heard about FreeMarkets and became involved in some of their earliest bidding events. The results have been good. EPC, with three U.S. plants and approximately 60 presses, is the recipient of two “major-dollar” packages of molding work.

“That’s fantastic for us,” says Grant. “That’s the encouraging part.”

However, Grant notes he has “some mixed feelings about the process” when taken as a whole. And it is not always FreeMarkets’ fault.

“The part that’s discouraging is the lack of preparation by the OEM,” Grant says, explaining he felt it was a “corporate decision to buy better” and so entered into FreeMarkets’ process. Although OEM corporate management had bought into the process for economic reasons, the decision created some political skirmishes among the OEM ranks.

“They didn’t get everyone’s buy-in,” says Grant. “Some middle managers began to rebel, saying ‘corporate isn’t going to tell me who my suppliers will be,’ and caused some very antagonistic feelings.”

Secondly, Grant says when the new business involved moving a mold, the OEM wasn’t prepared to move the business. “They rarely know what they have as far as workload, so the only way to move that kind of work volume successfully is if they really have their act together,” Grant says.

It has been his experience that some OEMs don’t know how many molds they have with a current supplier, how many cavities they have, whether or not there is fixturing that needs to come with the molds, or if the parts involve secondary operations. One major problem is there is no inventory buildup to give the OEM the time needed to make a major mold move from a current molder to a new vendor.

In one instance, EPC won a contract in June of 1998 and has, to date, received only one mold out of 50 that were supposed to be moved as a result of that bidding event.

“It’s disappointing that [FreeMarkets’ personnel] have done nothing to facilitate getting that business in here,” says Grant. “It’s basically like paying them a finder’s fee. They won’t help you move the business or solve the problems associated with that; they just give you the opportunity to bid. I’d like them to be more involved in helping us get the work here.”

Another problem Grant sees is that molded parts are bid as if quantities and other parameters are set in concrete. That’s just not the way it is. Quantities actually ordered are not close to the quantities quoted, so numbers have to change. That sometimes causes glitches in the new relationship.

However, Grant concedes FreeMarkets is becoming better at getting the bidders the necessary information they need to more accurately quote jobs. “This is a learning curve for them, too,” notes Grant. “After all, they deal with several different industries. How well do they know how each one operates? They’re making an effort to get the playing field level. They’re getting better at this by doing more prequalifying of molders up front. I see improvements.”

For molders who want to participate successfully in bidding online, Grant has this advice: “You have to really know your costs. We do, and that’s a big advantage to being successful in online bidding.”

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