Reverse Auctions Promise Savings In Procurement

2 Feb 2001 | Lance Cpl. John Lawson III

If an auction resulting in the highest price is the best way to sell, then a reverse auction resulting in the lowest possible price is probably the best way to buy.

Now, thanks to Maj. Paul Mangum and his staff at Camp Pendleton, CA., the Marine Corps is opening the door to conducting online reverse auctions.

Portending big savings in money and time, reverse auctions likely will be a tremendous benefit for the Marines and Marine civilians who keep the Corps stocked with everything from paper to water heaters.  Reverse auctions look to be especially useful when obtaining off-the-shelf commercial items.

Major Mangum recently took time from his Regional Contracting Office at Camp Pendleton to share his discoveries with contracting and procurement specialists at Headquarters Marine Corps, Washington, D.C.

The headquarters staffers were eager to hear what Maj. Mangum had to say in light of his early successes with online reverse auctions.

Prior to his Washington visit in mid-January, Maj. Mangum had orchestrated seven reverse auctions at Camp Pendleton. These reverse auctions delivered significant cost savings ranging between 10 and 40 percent with an average savings of 25 percent.  Major Mangum notes that these savings are measured against retail prices and similar purchases made in the past.

For the benefit of the Headquarters staff, Maj. Mangum conducted his eighth reverse auction during his visit. The staffers gathered around a computer and watched as the price for an order of office supplies started at $10,000 and closed at $6,000 in the space of 30 minutes.

To fully appreciate the benefits of reverse auctions, one has to consider the traditional method for soliciting bids. In a nutshell, the Marine Corps notifies potential sellers that it is taking bids for a certain item. The vendors then submit a bid, and the lowest bid usually wins. This whole process, which can involve a fair amount of "snail mail," is often rather slow. Furthermore, vendors rarely get the opportunity to submit more than one bid.

With reverse auctions, the entire process takes about a quarter of the time that the traditional method requires. Furthermore, each vendor can submit numerous bids. In short, each vendor can react to what other vendors are bidding, and the Marine Corps can reap the savings.

"This is something that is clearly deserving of recognition," said Shari Durand, the Director of Contracts at HQMC. There are more than two dozen contracting offices throughout the Marine Corps, and Ms. Durand encourages them to utilize this innovative contracting tool when it makes sense.

Frances Mitchell, a procurement analyst at HQMC, said online reverse auctions are highly feasible because "the rules are already there." Contracting offices don't have to learn any new regulations because, though the approach is new, the task of soliciting bids isn't.

"To veer outside the box was a long time coming," Ms. Mitchell said of Maj. Mangum's advances. "It's not a Marine Corps-wide process at this point, but that's what we foresee it being."

Frank Ledford, HQMC's deputy director for contracts and contract technology, said Maj. Mangum's methods may generate a lot of questions because they are new. However, no fundamental change in mindset is necessary.

"It's not a revolutionary technique; it's an evolutionary technique," Mr. Ledford said.

For those who like the sound of online reverse auctions, there may be some questions about    start-up issues. Fortunately, plenty of answers are already in hand.

The Camp Pendleton office has been using reverse auction software that is hosted by the Army.  Major Mangum says this software currently offers the best value to the Marine Corps. It has a good pricing plan, it's superior to other programs currently available, and it has a lot of potential for the future, according to Maj. Mangum.

Additionally, the program is user-friendly for the vendors as well as the buyers.

Basically, online reverse auctions are about as simple as using the increasingly popular, contract specialists say. The difference is that reverse auctions drive prices down, while prices on eBay go up. Obviously, the more prices go down, the more the Marine Corps benefits.

Headquarters Marine Corps