$1.$ What is the current situation and why consider reverse auction? How much is involved in the spend? $2.$ Why use Bothe AG and what is the role of Bothe AG$?$ How many suppliers are being considered to participate in the reverse auctions? $3.$ What are the preparations for the reverse auction and how long? What are Richard's concerns, issues, and expectations for having the reverse auction?Portland Bus Company Richard Kaplan, buyer at Portland Bus Company $("$PBC$"),$ PBC$\text{'}$s first use of reverse auctions, and several important in Portland, Oregon, was preparing for his meeting with decisions had to be made before finalizing arrangements Laura Henning, business consultant for Bothe US opera$-$ for the online bidding event. Before his meeting with tions, on October $14,$ Laura would be assisting Richard in Laura, Richard was to review alternatives for the auction managing a series of reverse auctions for approximately process, including the type of auction to be used and the $290$ components involving seven suppliers. This would be policy for selecting suppliers.PORTLAND BUS directly to David and was responsible for sourcing fabriPBC was owned by Dawe Motors, a Jeading global procated metal components. ducer of passenger cars and commercial vehicles, headquartered in the United Kingdom. The Portland plant assembled body shells for the Dawe Bus Division. The During the last three months, Richard had analyzed the shells were shipped from Portland to a facility in Medford, company's spend in three fabricated metal parts categoOregon, approximately $275$ miles away, for final assembly ries: hinges, brackets, and ducts. Ten suppliers were curand painting. rently responsible for $290$ different part numbers, repre$-$ Approximately $550$ people worked at the PBC plant. senting an annual spend of approximately $ $2$ million. It David McGregor, director of materials, headed a staff of had been more than two years since a thorough review $12$ people, who were responsible for materials planning. of these commodity categories had been conducted, and inventory control, and purchasing. Total annual purchases Richard felt that under current market conditions, signifiwere approximately $ $250$ million across five main com$-$ cant opportunities existed for cost savings. modity groups: fabricated metal, systems, fiber glass, elec. Four of the PBC$\text{'}$s current suppliers were not in trical, and power train. However, approximately $75$ per$-$ Richard's future plans because of concerns regarding past cent of purchases were set up through corporate purchasing performance. Furthermore, Richard intended to include with strategic suppliers, leaving about $ $60$ million to be a new supplier, Neelin Mfg$.$ Inc., in the online bidding sourced through David's organization. Richard reported event. Exhibit $1$ provides profiles of the seven suppliersChapter $4$ Supply Processes and Technology $113$ EXHIBIT $2$ Reverse A uction Packages that Richard was considering for participation in the plies industries. Its services included online auctions, supply reverse auction. contract negotiations, supplier management, and a range of THE REVERSE AUCTION web$-$based technology solutions. The Dawe passenger car division in Europe had recently completed a reverse auction Richand decided to group components into packages as project with Bothe and was very satisfied with the results, opposed to running $290$ separate online bidding events. Laura Henning, business consultant for Bothe US opEventually. he settled on $21$ packages of complementary erations, had been assigned to work with Richard to mancomponents, which were similar in terms of manufacturing age the reverse auction project. Laura and her team would processes, quality requirements, and production volumes be responsible for: $($see Exhibit $2).1.$ Working suppliers to set up the Bothe technology PBC $\text{'}$s parent company had a contract with Bothe AG$,$ an platform and providing training to their employees. online bidding event solutions provider, to provide assistance $2.$ Communicating relevant documentation to suppliers and technical support to all of its divisions for reverse auc$-$ regarding details of the auction packages, such as part tions. Located in Europe. North America, and Asia, Bothe specifications, quality requirements, and volumes. provided a range of consulting and technology platforms, $3.$ Conducting a test auction with suppliers, and subseworking with approximately $200$ companies in the automoquently addressing any technical issues or questions tive, construction, machinery manufacturing, and office supthat arise$\mathrm{.}114$ Purchasing and Supply Management $4.$ On the day of the auction. Bothe would monitor the Laura explained to Richard that there were a variety of online bidding event and provide helpdesk support to methods for conducting a reverse auction, and the primary all parties involved. The Bothe platform allows the during the auction$),$ length of the auction, policies for extend. $5.$ Auyer to watch the reverse auction live. $5.$ ing the length of the auction, and target pricing. For example, tion report to the buyer, including the results, which the Bothe system could be configured such se the current best price only, a ranking of all bid pricwould be available approximately two hours after the es $($displayed by color codes$),$ or the bidder's rank only $($e$.$g$.,$ auction event. best, second, third, etc.$).$ Laura also indicated that while most Laura had indicated that once arrangements were fi$-$ auctions ran $15$ or $30$ minutes, it was not uncommon to have nalized it would take a maximum of two weeks to install policies that exlended the event provided there was still bidthe Bothe platform at the suppliers and to train their staff. ding activity at the end of the designated time. Furthermore, Testing the platform would take an additional onie or two buyers in some reverse auctions set target prices to provide a days. Richard expected that suppliers would need at least pricing benchmark for bidders. two weeks to review the packages and prepare for the auc$-$ Lastly, Richard needed to decide on what basis the packtions. Consequently, Richard was planning to run the auc$-$ ages should be awarded and to what extent prices could be tions starting the middle of November, and he hoped to negotiated following the auction. David had indicated to have everything completed by the Christmas holiday. Richard that he expected a $25$ percent reduction in costs as PREPARING FOR THE REVERSE other factors needed to be considered beyond price. For exAUCTION ample, he recognized that there would be costs of switch. The meeting on October $14$ was to finalize the schedule for into account when awarding business. For example, should the reverse auction events, review alternatives for the auc$-$ the lowest bidder be awarded the package if the price savtion process, including the type of auction to be used, and ings was less than the costs of switching? Furthermore, to set policies for selecting suppliers. Since this was PBC$^\text{'}$ s what extent should PBC take into consideration long$-$term first reverse auction, David McGregor was sensitive that supply relationships when making the final sourcing deciany decisions might have implications for similar projects sion from the reverse auctions? Richard wanted to be clear in the future. Consequently, he expected to review Richard's and up$-$front as possible with the suppliers, some of whom plan before proceeding. he expected may be reluctant to participate.