Question

(43) What are reverse auction tools used for? What benefits do they provide to buyers and to suppliers? Why would an employee for a buyer resist the use of reverse auction tools instead of the ways they typically interact with suppliers?

(44) What are “Enterprise Resource Planning (ERP) systems? What benefits do they provide for a company that is part of a global supply chain? Why would a company be reluctant to use an ERP 5 system?

Answer 1

(43)

What is a reverse auction?

In a normal auction, a seller puts forward the product that he or she wishes to sell and the buyers have to place the highest bid for obtaining the product. The bidding takes place in terms of higher prices. In the case of a reverse auction, however, the role of buyers and sellers are reversed. Here, the sellers compete amongst themselves to get business from the buyer and the bidder with the lowest price wins. More than one seller offers his products for bidding at a price that the buyer is willing to buy.

Advantages to the suppliers:

• It opens up new opportunities for sellers to enter new markets and expand their business with existing buyers.
• It is a platform for small businesses to gain visibility by competing with much bigger businesses.
• It increases transparency for suppliers as they have the same information at the same time.

Advantage for the buyers:

• A buyer has access to a large supplier base.
• The buyer can place his own demand and has the luxury of choosing the seller who is offering the best price and quality.
• The whole set of formalities occur through a single auction process. Thus, the reduced negotiation phase saves a lot of time.

However, an employee for a buyer might prefer the traditional method of interacting with suppliers rather than Reverse auctioning because:

• Reverse auction is only concerned with the lowering of prices. It does not inform about the quality of the product as well as other costs pertaining to the contract. This can negatively impact the buyer’s business at a later stage
• As there is a certain ambiguity about the deal, the bid may result in a higher project monitoring and management cost if he chooses the wrong seller.
• The costs of cross-checking and performing due diligence on the winning bid and managing the project may surpass the savings.

(44)

Enterprise Resource Planning (ERP)

The core processes that are needed to run a business include Sales, marketing, finance, human resources, supply chain services, etc. ERP helps an organization in automating and integrating these processes to enhance its effectiveness. ERP is a business software that is designed to manage enterprise data. This enables employees in different divisions to use the same information for their specific needs.

Today, ERP is a critical component for managing thousands of businesses of all sizes and in all industries.

Benefits of ERP in a business:

• Since the business processes are integrated and streamlined, the operation cost is greatly reduced. Instead of spending resources on multiple departments and support teams, they can be better spent into one ERP
• A common user experience across different business functions provide an increase in efficiency.
• Critical business questions can be effectively answered due to greater visibility, resulting in easy access to information. Inter-departmental processes can be similarly tracked with maximum efficiency.
• It enables a business to analyse and compare functions and processes across departments without the trouble of unnecessary spreadsheets and emails.

However, there are some disadvantages to ERP that can make a company reluctant to implement it:

• The cost of implementing and maintaining ERP can be very high especially for small or medium businesses.
• The customization of ERP software takes a lot of time, effort and resources that are not always easy to comprehend.
• ERP is a complex software and is difficult to use. Its complexity might be too much for businesses to handle which may result in a poor ROI.
• In order to use the system efficiently, it is imperative to train all the employees in the company which consumes a lot of time, money and effort.

Hence it might not be a feasible option for many businesses