Nothing seems to rattle the tail of a manufacturing organization quite like being asked to participate in a reverse auction. But it is our contention that reverse auctions within the manufacturing sector are way down according to a comment in this article which appeared over on Spend Matters a little while ago. There are several comments in the post worth reading. But I think in context of metals raw materials, semi-finished materials and possibly further worked products containing metals, auctions are down and possibly out but not necessarily for the reasons you might suspect.
I would argue that they [auctions] are down in usage for a few reasons:
- In rising commodity markets, buyers tend to ‘lay low’ hoping their suppliers will continue to honor older pricing and/or delay the timing of price increases.
- Many materials had been in tight supply, and hence securing materials became much more important than price.
- In rising commodity markets, particularly when demand is healthy, buyers like to keep “options open” and don’t want to trigger any ill will by using the “R” [reverse] word.
There are likely many more reasons auctions are down but those are the primary ones as I see it as they relate to metals. But there is something else going on in today’s market.
And that my friend is stagflation, the economic condition in which price inflation co-exists with stagnation (slower growth, declining demand) creates an interesting conundrum. Stagflation is particularly applicable to several metals categories right now including steel, stainless steel and aluminum. Production and input costs are rising but demand is falling. Traditionally speaking, when demand falls, the pendulum shifts to a buyer market and a reverse auction (assuming there are qualified suppliers, sufficient competition, attractive dollar amounts involved etc) often makes sense. Because demand is falling (I’m making a general statement here), there is plenty of capacity which means certain supply markets (within the headers of steel, stainless and aluminum) may actually resemble traditional buyer markets. But with an obvious difference – buyers have to be realistic about what types of cost avoidance (that’s right, avoidance, not savings) they are seeking. Setting an artificially low “switching cost” will likely not generate supply market interest.
I would argue a reverse auction in a stagflationary environment can achieve benefits for the buying organization, more for further worked products containing metals than for semi-finished or raw materials. And though we still predict some prices to drop further this year, there is nothing like a reverse auction to show exactly where the market really is…
What do you think? Drop me a line at firstname.lastname@example.org.