'Auctions about flexibility, not price'

19 September 2001
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20 September 2001 | Geraint John

Online auctions are less about price reduction and more a tool that allows production flexibility, according to a major US computer manufacturer.

A reverse auction used to "spot buy" direct materials will often cost more than long-term, structured contracts, said Corey Billington, vice-president of supply chain services at Hewlett-Packard in the US. But it also allowed purchasers to devolve risk and manage fluctuations in supply and demand.

"Auctions have a very important role in providing flexibility, lowering inventory costs and improving our safety stocks," Billington told the E-commerce Summit in Rome.

Price cuts might result but these were not the main driver for using auctions, he said.

HP's manufacturing was largely outsourced, Billington pointed out, so much of its $26 billion (£17 billion) annual spend on direct materials was also devolved to suppliers. But Internet technology gave in-house

purchasing teams much-needed visibility on these operations and allowed them to intervene.

Billington said purchasing's role was moving from a contract function to one of "evaluating risk and deciding which suppliers are best placed to handle it". However, he warned that new skills were needed.

"Purchasers are good at exercising buying options, but poor at valuing and creating those options," he said.

SMsep2001

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