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Managerial
Managerial implications from implications
Indian case studies on e-reverse from eRA
auctions
513
Samir K. Srivastava
Operations Management Group, Indian Institute of Management,
Lucknow, India

Abstract
Purpose The purpose of this paper is to investigate e-reverse auctions (eRA) implementation
experiences across a diverse group of firms and sectors in the Indian context, to derive useful insights
for theory and practice.
Design/methodology/approach The paper takes the form of a qualitative multiple case study
following direct observation of object reality. The data analysed include written documentation,
archival records, physical artifacts and unstructured interviews with key eRA personnel.
Findings eRA work best in a competitive, high capacity marketplace and are the dominant strategy
when the focus is on low search cost per supplier, when the percent reduction over time in the price
offered by the current supplier is low and when the product is standardized. The optimum number of
bidders is five to ten. Most of the findings are in line with literature but some of them differ too. These
will add to academic discourse.
Research limitations/implications The small sample size and case method approach limits the
ability to generalize the findings. The firms were selected as a convenience sample and so may not be
truly cross-sectional. Only analytical generalisation is claimed rather than any statistical generalisation.
Practical implications eRA improve effectiveness of the sourcing process and facilitate access to
new suppliers. They also lead to standardization of sourcing procedures, reduced order cycle, reduced
prices and generally higher service levels. This paper will help firms in India and other countries to
develop policies, strategies and procedures while implementing eRA.
Originality/value The paper is perhaps the first on eRA practices in India. The author describes
the practices in detail and based on this develops a framework for eRA process and provides detailed
and concise guidelines for managers.
Keywords India, Electronic commerce, Auctions, Marketing strategy, Process management,
Electronic reverse auctions, Managerial guidelines, Case studies, Three-stage framework
Paper type Research paper

1. Introduction
Electronic reverse auctions (eRA) enable suppliers to compete online in real time and
are changing the way firms and their consortia select and behave with their suppliers
worldwide. They have gained popularity with the advent of economical and efficient
electronic capabilities (Smeltzer and Carr, 2003). The term reverse emphasizes that

The author thanks the middle and top managers of six firms for informal discussions and
interviews, as well as for allowing on-site observations and document perusal. The author also Business Process Management
Journal
thanks the suppliers managers who participated in informal discussions and interviews. This Vol. 18 No. 3, 2012
work would not have been possible without their co-operation and sharing of experiences, vision pp. 513-531
q Emerald Group Publishing Limited
and expertise. Finally, the author thanks the anonymous reviewers whose pertinent feedback 1463-7154
and useful inputs led to significant improvement in the manuscript. DOI 10.1108/14637151211232687
BPMJ competition among suppliers typically drives prices down, as opposed to the prices
18,3 being driven upward by competitive bidding in forward auctions. Further, location is
not a constraint. Firms are using eRA to drive purchase costs down to the lowest
possible price (Attaran and Attaran, 2004). Many firms report millions of dollars of
savings through eRA vis-a`-vis traditional sourcing methods (Emiliani and Stec, 2002;
Smeltzer and Carr, 2002).
514 Presently, eRA account for around 10 percent of total corporate purchase spend in
India. They are being carried out across items, industries and sectors since the beginning
of the current decade. Some of the leading third party eRA vendors in India are
01markets, Ariba, CommerceOne, Trade2gain, Metaljunction, Synise and India
Markets. Most of them provide end-to-end services that include spend analysis,
opportunity assessment, supplier identification, preparing request for quotation (RFQ),
training suppliers, bid events execution and post-bid analysis. For this, they deploy
diverse fee structures comprising various combinations of fixed start-up fee, transaction
volume-based fee, saving-based commission and consulting fee. Many firms like Apollo
Tyres, Arvind Clothing, Berger Paints, Carrier Aircon, Coal India Limited, Electrolux,
Godrej & Boyce, HCL Infosystems, HDFC Bank, Hero Cycles, Hindalco Industries,
Hindustan Motors, Hindustan Unilever Limited (HUL), Himalaya Drug Company,
JK Corporation, Larsen & Toubro, Mahindra & Mahindra, Madura Garments, Maruti
Suzuki Limited, Oil and Natural Gas Corporation (ONGC) and Tata McGraw-Hill
Publishing Company have reaped the benefits of eRA. These firms saved between 2 and
22 percent on their purchases, with average savings of 10 percent across all item
categories. Some segments where eRA have delivered substantial savings for buyers in
the Indian context are steel, automotive, commodities (starch and sugar), stationery,
transportation freight, maintenance, repair and operations (MRO) items, advertising
space, infrastructure items and hi-tech equipment.
The growing adoption of eRA in India motivated the present work wherein we
investigate corporate experiences with eRA across a diverse group of firms and sectors
to study their impact on business policies and practices. For the purpose of this paper,
we define eRA as:
[. . .] an online, real-time auction between a buyer firm or a consortium of firms and many
invited suppliers, where the suppliers can submit multiple bids during the time-period of the
auction, and where some degree of visibility exists among suppliers regarding the actions of
their competitors.
We synthesise from review of the eRA literature and six case studies to develop a
framework for carrying out eRA process effectively and provide step-wise detailed
practical guidelines for managers. This will ensure that the firms adopting and
implementing eRA are better prepared and need not reinvent the wheel.

2. Literature review
eRA offer dynamic pricing and enable the purchasing firm or consortia to buy goods and
services at the lowest price or a combination of lowest price and other conditions.
Sufficient literature exists to highlight the benefits of eRA (Attaran and Attaran, 2004;
Emiliani and Stec, 2002; Smeltzer and Carr, 2002; Kulp and Randall, 2005). Hawkins et al.
(2010) find that expected savings, buyer confidence and prior eRA sourcing satisfaction
lead sourcing managers to choose to source via eRA. A case study in the UK public sector
finds that eRA can improve procurement processes, realize cost savings and reduce Managerial
delivery times ( Jones et al., 2007). Bandyopadhyay et al. (2008) find lowered prices driven implications
by increased competition as the most notable benefit of eRA. However, the success of
eRA may not manifest just in price reductions but also in the reduction of costs of the from eRA
purchasing firm (Arnold et al., 2005). Sometimes, the buyer may experience an increase
in realized costs of doing business with the winning supplier (Elmaghraby, 2007). eRA
use has been and will likely persist as an effective cost avoidance mechanism 515
(Schoenherr and Mabert, 2007). One may refer to Wagner and Schwab (2004) for early
literature on eRA. They summarize in detail several sourcing management related
conditions that influence the success of eRA. They find that eRA are applicable to a host
of items (products/services) such as stationery items, software licenses, insulators,
personal computers, chemicals and plastics, billboards, etc. in sectors such as
telecommunications, logistics services, engineering and transportation.
The responses of buyers and suppliers to eRA have been found to be generally
different. The buyer firms that aim to compete on prices are very positive about eRA
whereas supplier firms that aim to differentiate on basis of their innovation capability
report bad experiences with eRA (Caniels and van Raaij, 2009). The buyers often use
the information gathered in eRA to renegotiate with their incumbent suppliers
(Elmaghraby, 2007). Literature finds that eRA may be coercive (Giamietro and
Emiliani, 2007) and also mentions unethical eRA practices, opaque contract awarding
processes and changing item specifications after the auction. An exploratory study of
eRA outcomes based on an extensive literature review and multiple case study
research finds that sometimes, buyers merely use eRA to survey market prices and
qualified suppliers are asked to unfairly compete against unqualified lower-cost
suppliers (Amelinckx et al., 2008). Some studies report a small set of suppliers who
perceive eRA as an opportunity rather than a threat and have favorable opinions about
them (Caniels and van Raaij, 2009; Srivastava, 2009). Schoenherr and Mabert (2007)
describe a few common myths versus evolving reality in eRA context and describe
their implications for managers. Elmaghraby (2007) defines various eRA formats and
also addresses issues related to constructing bidding lots, sequencing the lots auctions,
types of feedback to provide to bidders during the auction and the type of bid format to
use. She also discusses merits and demerits of rank versus full disclosure in eRA.
Careful preparation of the event including strictly equal treatment of all participants
and effective communication are key factors for obtaining benefits from eRA (Losch
and Lambert, 2007).
From supply chain perspective, Sehwail et al. (2008) carry out a detailed literature
review of eRA and call for more supply chain management research within the field.
Chopra and Sodhi (2004) suggest that acquiring redundant suppliers may be one of the
strategies for risk mitigation as eRA generally lead to higher number of potential
suppliers. eRA create supply chain efficiencies by selecting the least costly bidder,
while long-term relational contracts ensure the quality of the procured products or
services when these have non-verifiable attributes (Tunca and Zenios, 2006). Acquiring
redundant suppliers may be one of the strategies for risk mitigation as eRA generally
lead to higher number of potential suppliers (Chopra and Sodhi, 2004). Empirical
investigations about the role of firm size in the use of e-procurement applications and
their ability to facilitate supply chain integration have been carried out. Analysis
reveals a significant relationship between firm size and e-procurement application.
BPMJ Specifically, larger firms are more likely to use integrative types of e-procurement
18,3 (Pearcy and Giunipero, 2008). So, literature suggests that eRA lead to accurate
fulfillment and improved effectiveness of the procurement processes, achievement of
higher service levels, access to new suppliers, improved control of supplier
relationships, reduced prices from the key suppliers, reduced inventory carrying
costs and reduction in the order cycle. The research in the area is exploratory in nature
516 focusing on defining criteria and rules for managing the actual event, chronicling
success stories, examining the barriers to implementation and suggesting ways to
surmount them (Emiliani and Stec, 2004). Much of the research endeavour is
fragmented and there is little in the literature that offers a holistic management
approach that is underpinned by an empirical study. Corporate experiences based
step-wise detailed practical guidelines for managers to ensure better preparedness of
firms adopting and implementing eRA is missing. Concerns about supplier-buyer
relationships persist. Contingency approaches to eRA use also need to be explored
empirically. Another area of concern is the relative lack of security in eRA which too is
getting attention. There is not much published literature on eRA practices in India.
Recently, Srivastava (2009) describes reactions and tactics of suppliers and suggests
countermeasures against them based on his study of Indian firms. Detailed studies
about the implementation and use of eRA by Indian firms need to be carried out and
documented along with their managerial implications.

3. Research methodology
A three-step research design was adopted. The first step comprised of an extensive
literature review that has been summarized in the previous section. In the second step,
a multiple case study analysis involving a set of six firms was carried out. The
empirical analysis explored a number of key issues concerning eRA. We used a series
of event observations, interviews and perusal of written documentation such as reports
and memos, archival records and physical artifacts as the primary source of data.
These were substantiated with data from secondary sources which included firms and
vendors web sites and articles in business magazines. The findings from auction event
observations were triangulated by analysis of documents and information from
secondary sources. Our approach was not limited to description of the phenomena, but
also sought to develop theoretical concepts. In the last step, deductive analysis of the
case study findings was carried out to derive useful managerial guidelines.
Multiple cases are a powerful means to create theory because they permit
replication and extension among individual cases (Eisenhardt, 1991). Comparison of
two or more case studies provides concepts that are relevant to an emerging theory and
support explorative investigations. We used a cross-industry sample of six firms from
among the firms carrying out eRA for at least last five years in India at the time of the
study to derive a comprehensive set of findings. Care was taken to ensure that it
represented a diverse group of industries and auction experiences. It was a convenience
sample whose managers were known personally and agreed for allowing on-site event
observations and document perusal besides informal discussions and interviews.
Yin (2003) argues that, in most situations, six to ten cases should provide evidences to
support or reject propositions, while Eisenhardt (1989) recommends four to ten cases.
Our selection of six cases falls within these recommended frames.
 On-site observations were carried out for a period of about eight months. This Managerial
included observation of a total of 18 auction events in the six firms. Unstructured implications
interviews were conducted with managers of each of the six firms at several points in
time (generally before and after auction events) to understand the processes as well as from eRA
the evolution of changes. Informal discussions and interviews with a few suppliers
managers were also carried out wherever possible. Related data and information for six
to ten years were analysed through a cross-case analysis comparing evidence from the 517
six firms. The cases were compared with each other in order to identify commonalities
and potential patterns. The emerging patterns were then analysed and compared with
the existing literature findings to identify potential explanations to differences and also
to provide directions for further research.
Two levels of analysis are embedded in this study. The first is the eRA instance,
i.e. each individual instance where a firm conducted an auction. From this unit of
analysis, we derive information about the process of conducting an eRA, including the
steps to follow the problems that are likely to occur and how to avoid/fix them.
Multiple events helped to develop sound arguments. This also helped us in suggesting
best practice processes. The second level of analysis is the firm, i.e. the process a firm
used to build eRA capability, use it, and refine it over time. From this level of analysis,
we derive results about the process of initiating and adopting eRA as a business
practice. Data at this level provided insights into organizational changes to support
eRA, finding conditions under which eRA is/is not effective, and in identifying steps
required to set up an eRA capability.

4. Case studies
We explore how the six sample firms in five different sectors use eRA and how these
are integrated into their sourcing processes. All the six firms in our study used online
e-procurement and reverse auction tools at their e-business platform either by
themselves or through third-party online reverse auction service providers. They had
been doing so for at least last five years and had carried out a number of auctions on
diverse items like third-party transportation, steel, advertising, computer peripherals,
rubber, courier services, wire grills, wiring harnesses, auto components, capacitors,
wire shelf, insurance policies, travel packages and packaging materials. Key
observations related to actual implementation, the information revelation options
available and exercised are drawn from the case studies. Our sample firms comprise of
a global travel, financial and network services provider (service sector), an automobile
manufacturer (auto sector), a computer equipment manufacturer and distributor
(IT sector), an air-conditioner manufacturer (consumer durables sector) and two firms
manufacturing and distributing fast moving consumer goods (FMCG sector).
Managers and executives directly responsible for eRA implementation in these six
firms participated in discussions and unstructured interviews. Corporate documents
and archival records were accessed for primary information. A brief profile of the firms
under study describing nature of their business, year in which eRA were started,
percentage purchase spend in turnover and percentage of eRA spend in overall
purchase spend for the year 2009-2010 are presented in Table I. Turnover means the
total revenue arising from the principal activities of the firm and excludes those items
of revenue and gains that arise incidentally. The purchase spend refers to the total
BPMJ
Year Auction Percentage of purchase Percentage of eRA
18,3 eRA process spend in turnover for spend in purchase
Firm Nature of business started choice 2009-2010 spend for 2009-2010

A Global travel, financial 2002 Third 36 28

and network services party
518 provider
B Automobile 2003 In-housea 65 4
manufacturer
C Computer 2003 In-house 57 14
manufacturer and
distributor
D Air-conditioner 2004 In-housea 60 12
manufacturer
E FMCG Manufacturer 2000 Third 43 10
and distributor party
F FMCG manufacturer 2001 Third 45 9
Table I. and distributor party
A brief profile of the firms
under study Note: aStarted with third party and subsequently shifted to in-house

amount spent by the firm on procurement of goods and services. For the reasons of
anonymity, we name the Firms A-F and disclose data in terms of percentages only.
From Table I, we see that the FMCG sector firms (Firms E and F) were the
first-movers and started eRA during early part of the last decade. In fact, one of them
served as an example for its counterparts in Asia-Pacific to go for eRA. The
manufacturing-focused firms (Firms B-D) were slightly late to start eRA and although
their purchase spends form high percentages of their turnovers, the sourcing through
eRA is relatively lower. The service sector (Firm A) is reaping higher benefits as it has
significantly higher percentage of eRA spend in purchase spend. Comparison of records
between early, late and lagging adopter firms did not indicate any significant differences
in benefits accrued which were measured in terms of percentage cost savings, delivery
improvements and larger supplier pool.
None of the firms in our study lost trust in the external service provider and all these
firms are continuing with eRA and continue to source more items through them. In two
cases, the firms subsequently joined a consortium of supply chain partners to conduct
eRA for certain items in order to capitalize on economies of scale. As one of the managers
at Firm B stated:
We found that our item quantities for certain items were not large enough to leverage the
benefits of eRA; we could also not attract many suppliers [. . .] we then realised that we can
achieve critical mass if we somehow combine our orders with our tier-2 and tier-3 suppliers
[. . .] today this strategy is benefitting us as well as our tier-2 and tier-3 suppliers.
Initially, all the firms used eRA service providers but later two of them (Firms B and D)
started carrying out the auctions in-house. It is worth sharing here is that for these two
firms, the absolute percentage spend on eRA was quite low and stagnant as evident from
Table I. So, shifting auction in-house worked out as a more effective option. Firm D,
being a small firm was mainly facing supplier pool insufficiency. Once a sufficient pool
of suppliers and mutual trust had developed, it started conducting eRA in-house. As one Managerial
of the managers at Firm D stated: implications
Initially, we were apprehensive in going for eRA for certain components where we had a from eRA
limited number of suppliers. The eRA service provider helped us to increase the supplier pool
[. . .] they helped us achieve low search cost per additional supplier [. . .] this also resulted in
better delivery adherence besides cost savings.
519
Another manager at Firm D stated:
There was lot of initial resistance from incumbent suppliers; our relationships took a
downswing [. . .] with time, our suppliers have got acquainted with the process and faith in
eRA has firmed up [. . .] today we have a larger pool of suppliers and slowly but steadily
mutual trust too has developed. Now, we seldom have to look beyond our existing supplier
pool for conducting eRA.
Firm B had reasonable potential to conduct eRA in-house. This comes out clearly from
statement of a manager at Firm B:
We have a full-fledged IT department employing competent professionals [. . .] the eRA
concept having been internalised, we found paying the service provider an unnecessary and
avoidable expense; from 2006 onwards, we are carrying out auctions using in-house
developed eRA platform [. . .] after a few successful auctions we have been able to arrive at a
right auction designs which are robust and flexible establishing trust in the tool.
eRA helped our sample firms to reduce the cost by 15-20 percent in first year of
implementation. The additional savings in the subsequent years varied from 3 to
8 percent. The number of participating suppliers also generally increased. The
multi-year change in data for a particular item in one of the FMCG firms (Firm E) is
summarized in Table II. The base order value is taken as 100. Savings in the first year
were 15.2 percent and then hovered around 3-4 percent in subsequent years.
Table III summarizes the 18 auction events that we observed in the six firms. All of
them were planned eRA and none had to be cancelled. The items were found to be routine
and leveraged types as per Kraljics (1983) framework. Most bid events were single-lot,
single-price auctions. A few were for multiple lots too (bundled). Bundling was done for
procedural convenience or when the volume for individual items was low. The supply
market was either competitive or oligopolistic. In most occasions, the overall supply
capacity was much more than the auction bid requirements. The number of participants
in each eRA varied and was found to be dependent on the type of item, volume of order
and a host of other factors. Generally, service levels increased marginally in eRA.
Further, there was significant reduction in order cycle times in certain instances,
specially when eRA was being conducted for a particular item for the first time
(S. No. 16 and 17 in Table III).

Year of eRA No of suppliers Order value Percentage savings

Base year 10 (sealed bid) 100 Not applicable

First year 8 (eRA) 109 15.2 Table II.
Second year 10 (eRA) 120 3.4 Subsequent savings in
Third year 12 (eRA) 135 4.2 eRA for a third-party
Fourth year 12 (eRA) 140 3.1 transportation in a Firm E
BPMJ
Reduction Percent
18,3 Type of Supply market in price Supplier Percent change change in
S.No. Firm item(s) characteristics (%) participation in service level order cycle

1 A Leveraged Competitive 6 10 Up 1.5 220

2 A Routine High capacity 7 15 No change 210
520 3 C Bundled Competitive 5 9 Down 1 210
4 B Bundled Oligopolistic 3 5 Up 2 28
5 A Routine Competitive 4 18 Up 1.8 No change
6 E Leveraged Oligopolistic 3 7 No change No change
7 F Bundled High capacity 8 10 Up 1 210
8 D Leveraged Competitive 3 5 No change No change
9 F Bundled Competitive 8 15 Down 2 25
10 E Leveraged High capacity 5 14 Up 2 No change
11 A Leveraged Competitive 6 9 No change No change
12 F Bundled Oligopolistic 4 6 Down 1.5 215
13 C Leveraged Competitive 5 7 No change No change
14 D Routine High capacity 4 14 Up 2 No change
15 E Bundled High capacity 3 11 No change No change
Table III. 16 C Leveraged Oligopolistic 10 7 Up 1 250
Summary for observed 17 E Bundled Competitive 16 13 Up 3 230
auction events 18 B Leveraged Oligopolistic 4 8 No change 220

In all these instances, specific identities and passwords were provided to bidders for
online bidding after providing sufficient training. The practice of charging an earnest
money deposit (EMD) was followed. The EMD ranged between INR 50,000 to INR
1 million. This eliminated non-serious suppliers and left little scope to various
stakeholders for tinkering with the system. The software solution in all instances had
built in security checks and balances to ensure that no unauthorized bidder could
participate in the bidding process. Further, data encryption was used to ensure that data
traveled safely.
Table IV summarizes the savings in a particular eRA instance (S. No. 8 in Table III)
for wire harness at the air-conditioner manufacturer. The potential savings ranged
from 2 0.2 to 3.6 percent over the previous year. These are on the lower side as the
auction was being conducted for the sixth time and the item material prices too had risen
marginally over the previous year. One noteworthy feature was that the final award
went to the firm which had quoted second lowest as it was an incumbent reliable supplier
while the lowest quoting supplier was a non-incumbent supplier. The criterion for
certain additional weightage to incumbent reliable suppliers had already been specified

Supplier Firm X Firm Y Firm Z Firm V Firm W

Final 124,000,000
price INR 120,000,000 INR 124,750,000 INR 123,457,750 INR 121,000,000 INR
500,000 INR 4,500,000 INR 2 250,000 INR 1,292,250 INR 3,500,000 INR
Savings (0.4%) (3.6%) (2 0.2%) (1.0%) (2.8%)
Table IV. Rank 4 1 5 3 2a
Summary of savings in
an eRA at Firm D Notes: aFinal bid winner; INR Indian national rupee (1US $ < 47 INR in January 2010)
clearly in the RFQ. Similarly, in few cases of eRA involving different lots, more than a Managerial
single party was awarded the contracts as per the pre-stated criteria in RFQ in four of the implications
firms studied (Firms B, C, E and F).
Going back to adoption of eRA, the first auction event in our sample firms was carried from eRA
out by one of the FMCG manufacturer and distributor (Firm E) in the year 2000. The
managers of the firm shared that this was more incidental than being innovation driven.
This firm used third parties for transporation from its five contract manufacturing sites 521
and had reasonably good service delivery experience with the incumbent vendors. The
rise in gasoline (diesel) prices led to a demand for 10 percent hike and negotiations with
the incumbent vendors were not yielding results. Around the same time two eRA service
providers, Freemarkets.com (now acquired by Ariba) and 01markets.com (an eRA arm
established by Wipro in April 2000) approached the supply chain head with the concept
of eRA. Both these eRA service providers were keen to establish themselves in the Indian
market and saw great opportunity in proving service to this reputed FMCG firm. The
managers of this FMCG firm were thus exposed sufficiently to the eRA concept,
technique and technology. They decided to give eRA a try for transportation as the
potential benefits seemed promising and one of the eRA service providers (01markets)
offered very enticing terms of contract. It was charging negligible fixed cost and very
small percentage of savings accrued, if any as additional charge. It was also willing to
take responsibility for training the vendors and taking care of most of other technical
requirements for hosting eRA. So, the push to adopt eRA was circumstantial. This firm
worked in close co-operation with 01markets to conduct eRA for the first time.
There were large resistance from incumbent vendors to participate in eRA but finally
the firm was able to convince most of them to participate. Total 22 Vendors agreed to
participate. This included a few additional vendors identified by 01markets in supplier
search. In pre-bid qualification, 17 of these qualified for the bidding. A lot of effort went
into electronic document preparation and training. 01markets trained the vendors for
online bidding and conducted a few mock runs. Some technological glitches were
detected and corrected during mock runs (like even larger bid prices being accepted or
typological errors like additional or skipped number entries in bid values). Finally,
online eRA was conducted. Archival records show that three vendors won the bid for
overall seven lots. These comprised two new and one incumbent vendor. This eRA
resulted in savings of about 9 percent from the base year for the firm rather than it
paying additional 10 percent as per incumbent vendors demand. Since then, this firm
has been conducting eRA for these services and has also been adding other items in the
eRA fold. Experiences of the other five firms in our study have been similar. However,
rather than co-incidence, benchmarking and top management dictates have been the
prime drivers for eRA adoption for them,
The initial response of most incumbent suppliers in first instance of eRA proposal in
all case studies was not very positive. Archival records, incidence recalls and our own
observations reveal incumbent vendors statements like, Youre focusing only on costs
and trying to squeeze us [. . .]. It will lead to compromise on quality! [. . .] We always
served you well; we feel betrayed! They expressed unequivocally that there was no
upside for them. On the other hand, reactions from new potential vendors were generally
positive like, We would love to supply to you!. In all our observed eRA events, we did
not observe any instance of coalition and collusion nor was this reported by any of the
stakeholders we interviewed. We also did not observe or hear about unethical
BPMJ eRA practices, opaque contract awarding processes and change of item specifications
18,3 after the auction by the buyer. The complete process generally took as long as four
months for certain items, where vendor development along with design inputs was
required to be undertaken. On the other extreme, the process took only two to four weeks
for certain items. The actual auction (online bidding) was usually open for
2-6 h depending on factors such as lots, participating community, bid transaction
522 value and competition amongst bidders. All planned bid events did not always
take place, particularly in the initial few years and some of them had to be
cancelled/postponed due to reasons like inadequate number of bidders, lack of online
bidding exposure, etc. We found only two incidences of cancellation in records. The firms
and the service providers shared losses as per their pre-agreed terms. In first
instance, few incumbent suppliers of Firm F backed out at the last minute. The losses
were made up by the EMD deposits lost by the four incumbent suppliers. In the second
instance, Firm C had to pay the service provider the upfront charge of INR 150,000. The
service provider too had to bear the burden as the effort gone waste was much greater.
We did not observe any renegotiations with the suppliers and none of the firms reported
any concern in relation to the supplier performance level once the contract had been
signed. This was quite different from the concerns in extant literature. The supplier
participation increased in subsequent years in most of the firms studied. All the six firms
carried out post-bid reviews to make sure bidders completely understood the scope and
schedule a well as all the associated costs.
Sourcing managers in all six case studies analysed the advantages, disadvantages,
opportunities and risks of eRA sourcing for each specific procurement action. Most of
middle and top managers of the sample firms saw both potential benefits as well as
risks in eRA. We reproduce below statement of a manager of Firm A:
eRA improve control of supplier relationships, lead to accurate fulfillments and improved
effectiveness of the procurement process. Access to new suppliers helped us to mitigate
supply chain risk by having more potential suppliers [. . .] eRA also lead to reduction in the
duration of the order cycle, reduce prices from the key suppliers, reduce inventory carrying
costs and generally lead to higher service levels.
Commenting on the pre-requisites and benefits of eRA, a manager of Firm E stated:
It is vitally important as a buyer to have clear item specification and contract terms. Auction
volumes must me reasonably high to attract potential suppliers; so rather than having many
variants of the item, it is better to have a standardized one [. . .]. A big advantage of eRA is
that participant location is not a constraint [. . .] eRA may provide opportunity for
harmonization and standardization of suppliers terms and conditions and thereby align the
firms business processes. Our payment terms were standardized to 30 days from earlier
range of 15-90 days that we had for different vendors.
Our study reveals that eRA are the dominating strategy when the focus is on low
search cost per supplier, when the percent reduction over time in the price offered by
the current supplier is low, when the item falls under routine and leveraged categories
and when there are not many variants of the item. The buyers select items for eRA on
the basis of various parameters like the market characteristics, supply-demand
analysis, commodity price trends, current contracts, number of suppliers available,
procurement and technical team requirements, etc. The buyers reveal selective
information to the potential suppliers at the time of online bidding. The suppliers are
told the historic prices and the reservation price, if any. They invariably get alias Managerial
names to prevent cartelization. The computer screens visible to the buyer and the implications
bidders are also different. The buyer gets to see the overall comprehensive information,
while the bidders can see only selective information. Bidders see their own rank in the from eRA
least transparent mode. In more transparent mode, they also see the competitors bids.
These may again be available for the whole time elapsed or for the last few bids.
Our findings reveal that the buyers go for eRA if they minimize their total cost of 523
sourcing. They consider switching and procedural costs besides the bid price to
determine the impacts of eRA, although no firm in the study had a comprehensive
approach to eRA costing recording and reporting. Expenses other than supplier
switching cost are generally not considered in RFQ documentation. Most firms had a list
of preferred suppliers and preferences to incumbent suppliers in RFQ served as a
surrogate for switching costs. A key observation across all eRA was that the incumbent
supplier generally knows the distribution of buyers switching cost. It participates and
chooses either one of the two bidding strategies: submits the lowest bid or offers the bid
price that is greater than the lowest bid price but less than the lowest bid price plus
expected buyers switching cost. Mostly, high switching costs inhibit the readiness of
firms to invite a large enough number of suppliers to participate in eRA. Most successful
eRA in our study suggest that the optimum number of bidders is five to ten.
As in literature (Bartezzaghi and Ronchi, 2005), our interactions indicate that most
incumbent suppliers do not like reverse auctions and offered resistance as eRA restrain
their contractual power and reduce their margins. They also used various tactics like
threat, deal, circumventing, collusion and bird watching as reported by Srivastava
(2009) which are reproduced in Table V.
Besides the barriers to eRA from external stakeholders, the firms under study also
experienced barriers from within from purchasing and other departments. The barriers
were generally related to entrenched practices (resistance to change), uncertainty about
risk versus returns, technology/software related apprehensions, market and business
environment/practices and internal resources/competencies. The same can be broadly
classified into adoption and implementation barriers and are similar to the ones
suggested by Srivastava (2007) in Indian retail scenario. These barriers may be present
elsewhere too but have not been reported explicitly in extant literature. The most

Tactic Countermeasure

Threat try to sway the buyer by claiming they
will not participate
Deal offer lower pricing in return for not going
through eRA
Circumventing submitting bid outside (e.g. an
oral or paper bid before, during or after the online
bidding process)
Collusion attempt to collude with other
suppliers during the online bidding
Bird watching participating in eRA but not
bidding; goal of gaining market intelligence
Source: Srivastava (2009)
Make it clear that the buyer is totally committed
to the eRA process and there is no alternative
Buyer should not be tempted since such an offer
indicates that there is money on the table
Make it clear that no bids will be considered
outside of the online sourcing process
Issue prior warning that supplier collusion is
illegal and will be dealt with accordingly
Make pre-bid qualifications stringent so as to
generally address this issue Table V.
Countermeasures for
tactics of suppliers
BPMJ common means of overcoming these barriers followed by these firms was through
18,3 education and training of purchasing and other department personnel, obtaining the
input of employees in the development of the eRA process, and by providing internal
performance incentives including making eRA use and performance a part of the
employees formal performance appraisal. At one firm, over 50 personnel were trained in
the use of eRA, and each of these individuals received over 15 h of training. In these
524 training sessions, the key attributes of an auction, programming an auction, and running
and rerunning the auction were addressed. Another technique used by some firms is the
sharing of success stories to provide motivation and evidence of the effectiveness of eRA.
On the basis of the above case studies, we develop a framework for carrying out
eRA process effectively the first time itself. We break the entire eRA process into three
major stages or sub-processes: pre-bid, online bidding and post-bid processes. The
same is shown in Figure 1. Actually, the pre-bid and post-bid processes are as
important as the online bidding process. In the pre-bid process all the necessary
spadework needs to be carried out meticulously. This includes collecting methodical
and detailed item specifications, collecting detailed information about potential
suppliers and collecting performance information about third-party online reverse
auction service providers. Next, a decision needs to be made whether a third party is to
be hired or the eRA activity is to be conducted in-house. Accordingly, a third party has
to be selected or the process of hosting the auction site has to be started. Detailed RFQ
and pre-bid qualifications needs to be prepared before suppliers are invited. The
selection of potential suppliers after screening through pre-bid criteria and their
training for online bidding form the last stages of the pre-bid process. Now, the
potential suppliers have to be informed of the date, time and duration of the bidding
and the same needs to be carried out. It is advisable to provide alias names to the
potential suppliers in order to maintain anonymity during the online bidding process.
Pre-agreed selective information may be continuously provided to them during the
online bidding process. In the post-bid process, the bid-awards, as per pre-defined
criteria need to be transparently communicated to all the bidders. The detailed
documentation with the suppliers who win the order has to be carried out as in normal

Pre-Bid Process
Collect Supply Collect Third-Party Select the Third Party Prepare
Requirements Exptirse Data or Develop own Web-site RFQ
and Supplier's Data
TrainPotential Select Potential Define Pre-Bid Invite
Suppliers Suppliers Qualifications Suppliers

On-Line Bidding Process

Inform Date & Give alias Names to Carry out Reveal Pre-agreed
Time of Bidding Prevent Cartelisation On-line Bidding Selective Information

Figure 1.
Three-stage framework Post-Bid Process
for electronic reverse Communicate Carry out Detailed Documentation Continuously Monitor
auction process Bid Award(s) (as in Normal Bidding Process) Supplier(s)Performance
bidding process. A very important aspect of post-bid process may be continuous Managerial
monitoring and feedback of supplier(s) performance. implications
from eRA
5. Discussions and managerial recommendations
Although, the focus of eRA is on attaining process and cost efficiencies, they help firms
not just in cutting costs or lowering investment but also provide more opportunities to
stay focused on core competencies. They reduce the possibility of production disruption 525
due to problems of a single supplier. Often, the advantages of an online auction format
could be secondary to the more critical issue of getting more suppliers. eRA work best in
a competitive, high capacity marketplace. They reduce paperwork as well as review and
award times. Everything is captured electronically, eliminating confusion and potential
disputes. The process is transparent and everyone gets the same pre-bid package and
walk-through. Besides, all questions may be addressed and answered electronically and
shared with all bidders at the same time. Buyers decision to use eRA depends on item
specifications, supplier relationships, the current supply and demand environment,
indirect costs and several other factors which vary for each item and for each buyer.
Similarly, suppliers may consider the opportunity to benchmark their cost structures
with competitors to improve their supply chain efficiencies.
Managers must understand how eRA fit in the broader context of effective supply
chain management. It is only a pricing tool a means to an end not the end itself. Though
eRA offer several benefits for both buyers and suppliers, managers must carefully weigh
their pros and cons. When a firm is looking at eRA as a sourcing option, it should first
and foremost consider some key factors like thorough understanding of their
advantages other than one-off transactional cost savings, resource investments, time
involved in the process and the likely cultural and organizational barriers. In addition to
evaluating the need for transparency in the award decision, there is also a need to
understand which auction format is best for a particular market. Issues related to
sequencing the auction bundles and rank versus full disclosure need to be resolved
beforehand. Further, higher the supply market fragmentation and competition among
potential suppliers higher likely is the item auctionability. Similarly, greater the
centralization of decision-making in buying centers, higher likely is the possibility of
using eRA. In case of bidders from overseas, in addition to the entire legal structure, care
has to be taken of the differences in the cost stack up, the duty structure, the freight costs
and the currency differences during market making process which includes the RFQ
preparation and compliance from the suppliers so that the suppliers are clear what stack
up they have to put.
On the basis of our study, we provide step-wise detailed flowchart to help managers
in conducting eRA, first time or subsequently. The same is shown in Figure 2. The first
and foremost step is the identification of a sourcing opportunity. Some of the prime
drivers that lead to a potential eRA sourcing opportunity are: cost reduction initiatives
within the firm/industry; requirements of new parts/components/material; routine,
non-critical and/or leverage items; contract, pricing agreement or blanket order expiring
in less than few months; poor incumbent supplier performance and likely price increase.
The next step is related to the fact whether the firm has conducted any eRA earlier or
not. It is related to the soft aspect of cultural readiness and the hard aspect of eRA
software related capability. If a firm is contemplating to conduct eRA for the first time, it
needs to make its internal stakeholders change-ready. For this, it needs to start with eRA
BPMJ
Identify an eRA Sourcing Opportunity
18,3

526 Going for Yes

Conduct an eRA Kickoff Meeting
eRA first
with Key Internal Stakeholders
time?

No

Perform Data Collection

Are internal No
and Data Formatting
stakeholders
convinced?

No Yes
Is the

Carry out necessary changes

opportunity Build / Source
suitable? eRA Software

Yes Not OK

Draft Comprehensive RFQ OK

Document and Assemble Other Test
Related Documents Software

Increase Supply Base and Pre-Bid qualification Test

Develop Supplier Invite List Finalise Supplier List

Conduct Online Reverse Auction Manage Suppliers to Bid Day

Figure 2.
Flowchart for conducting Notify Suppliers of Outcome Implementation with
electronic reverse auctions Conduct Post-Bid Award Meeting Awarded Supplier(s)
kickoff meeting with key internal stakeholders such as personnel from purchasing and Managerial
actual user departments. Many times other stakeholders such as personnel from quality implications
assurance and marketing could also be involved. Detailed discussions and concerted
efforts are required to convince most of them about the likely benefits of the initiative. from eRA
Further, at least some of them should be enthusiastic about it; otherwise, they may not be
able to convince the external stakeholders, particularly the incumbent suppliers to
participate first time. To actually conduct eRA, software capabilities are required. A firm 527
has the option of doing it in-house or sourcing from outside. The more successful
strategy observed has been to engage third party eRA hosts. With experience and
growing volumes/value, the firm always has the option of developing the capability
in-house. The software needs to be tested and necessary changes need to be carried out to
make it appropriate to the particular requirements. An inherent requirement in the
software is that it should be robust and reasonably flexible.
Once the software capability is established, it has to be followed by data collection
and data formatting. The data collection should focus on the unique characteristics,
detailed specifications, last price (if any), extended cost, current requirements, etc. The
sources could be archival records, drawings and prints, computer databases and inputs
from internal stakeholders. Data formatting entails storing the collected meaningful
information in a standard format in a computer spreadsheet/database. This facilitates
analysis and updating. As eRA may not be suitable for all types of purchases,
managers need to decide whether the opportunity is suitable or not for eRA. The
formatted information along with factors like availability and readiness of sufficient
number of suppliers, reestimation of benefits and software capability provide the
instance-related inputs to take a decision. If the decision is yes, the next step is drafting
a comprehensive RFQ document and developing a supplier invite list. The detailed
RFQ document should contain starting and reservation bid prices, lot listing/bundling,
detailed cost breakdown and service level expectations, a non-disclosure agreement,
the bidder agreement, quality documents and the terms and conditions document. It is
advisable to have a list of preferred suppliers as well. The focus should always be on
increasing the supply base (number of potential suppliers). Finally, a supplier invite list
should be arrived at.
The pre-bid qualification test for potential suppliers is a defining step. Here,
historical data and market sourcing may be carried out. Site visits of personnel from
buying firm to suppliers works may be carried out selectively to ascertain suppliers
credentials. Those who qualify make it to the final supplier list. RFQ should be posted
during this step. Now, rules for the auction are frozen and potential suppliers (only
those who qualify pre-bid qualifications and are willing to participate) are to be
formally invited. These auction participants need to be managed to the bid day. Ample
time should be allowed for them to prepare for the actual online auction. They need to
be trained for online bidding through a series of mock runs.
Conducting the actual online reverse auction as per agreed upon visibility comes
next. Necessary actions should be taken to prevent any eRA abuse. Suppliers may be
given an alias name for bidding to avoid cartelization. Sufficient preparedness should
be there for real-time interventions and clarifications, if any to ensure success of the
event. This is followed by the post-bid process wherein a post-bid award meeting is
conducted to notify the outcome to the suppliers after analysis of the results. Even
non-awarded suppliers should be communicated the result properly. A good practice
BPMJ is to flash the results within minutes of the conclusion of the online auction. This
18,3 ensures transparency and mutual trust. The parties should enter into a written contract
as in any purchasing process. The last step is related to implementation with awarded
supplier(s). Suitable pre-agreed metrics should be used. Further, noting down critical
incidences may also be useful. Continuous auditing and monitoring of performance
data is helpful in both good implementation and future use.
528
6. Conclusion
This paper examines and describes the actual experiences in conducting eRA across a
diverse group of firms and sectors in the Indian context. The process is applicable to
sourcing of many types of goods and services across most sectors and industries.
However, eRA seem more appropriate and suitable in industries and sectors like
advertising, auto components, bulk chemicals, consumer durables, computers and
peripherals, contract manufacturing, courier, FMCG, healthcare, hospitality, insurance,
leasing, logistics, maritime shipping, MRO, retail, software licensing, textiles, tourism,
transport and warehousing. Through review of the literature and our multiple case
study research, we show that buying firms can achieve multiple, combined eRA
outcomes and that eRA success may be more than mere price savings. eRA allow
procurement cost reduction by increasing market efficiency in terms of suppliers
search and selection, contract negotiation and purchase price. They provide the
opportunity to increase the efficiency of the supply process by automating and
facilitating the procurement process; they may also increase the effectiveness of
the supply process in terms of quality, degree of innovation, time-to-market, expanding
the supplier base, creating competition among suppliers and increasing service
level to the end consumer. Proper security checks and transparency in RFQ can
successfully stop unethical practices. Issues related to lot-sizing, information revelation
and the type of items are also covered briefly. Our case studies suggest that
experienced eRA firms have moved beyond the hype and have embraced them as part
of their normal sourcing processes. eRA have led to decreased cycle times for suppliers
and a significant decreased buyer cycle times for repeat auctions. Location not being a
constraint was found very convenient by all the stakeholders. The success of the eRA
in general depends on the application of the right conditions for eRA and a right
auction design. These need a strong process awareness and knowledge. Missing
knowledge may lead to wrong decisions along the sourcing process.
Methodologically, our work provides empirical evidence obtained through a
qualitative grounded theory approach. In some areas, practice leads theory and
therefore the findings will add to academic discourse. They will help firms in India and
other countries to develop policies, strategies and procedures while implementing eRA.
Our major contribution lies in defining a framework for eRA process on the basis of our
case studies. The adoption of the framework will have impact on practitioners. To
successfully implement eRA firms should:
.
provide clear and comprehensive item (product or service) specifications,
including lot size, weightages to other criteria besides price, etc. in RFQ;
.
ensure that the purchase quantity/value is large enough to provide an incentive
for the supplier to participate;
.
build technical eRA competencies or find suitable third parties;
 .
work for gaining potential suppliers confidence through transparent Managerial
trustworthy ethical practices; and implications
.
continuously experiment with improved eRA designs. from eRA
Presently, eRA account for around 10 percent of total corporate purchases in India
which is slightly lower than found in existing literature. The reasons could be lesser
economies of scale and higher buyers switching inertia. We find that high switching 529
costs inhibit the readiness of firms to invite a large enough number of suppliers to
participate in eRA. This is in agreement with Wagner and Schwab (2004). However, the
declining level of supplier participation reported in literature was not observed in our
study. The reasons could be attributed to the present market and business conditions
in an emerging economy. Our findings that the supply market competition, supplier
and buyer e-readiness and e-sourcing tools and expertise act as moderators are in
agreement with Amelinckx et al. (2008). Hur et al. (2007) find that full-service (third
party) eRA are as effective as in-house eRA. However, our study finds that this may
not always be true and effectiveness is actually context-dependent.
To succeed today and to pave the way for a better future, firms in India need to
create strong linkages with their supply chain partners. Based on our study, some
emerging trends can be discerned. Technology, which was earlier taken to be a driver
for doing business in a particular fashion, has now become a necessary enabler for
aligning business in both government and corporate sectors. Web-based tools now
exist allowing businesses to host their own eRA on a pay as you go basis to procure
goods and services. Indian government has large monoliths in sectors such as armed
forces, railways and oil and gas. By adopting eRA (as recently done in ONGC pilots),
the government can save money in a big way. The government of India should take a
cue from the US and Singapore governments which have adopted e-sourcing in a major
way. However, labor costs being lower in India, the potential for cutting down costs in
labor is less than a market like the USA and Singapore.
Our study reveals a few areas of concern as well. With the emergence of web-based
tools, online transaction security has become an important area of concern. Codes of
conduct and guidelines for eRA need to be formulated by concerned stakeholders and
put into practice. The small sample size and case method approach limits the ability to
generalize the findings. The firms were selected as a convenience sample and so may
not be truly cross-sectional. We have also not looked into eRA as a technologically
assisted form of power-based bargaining in supply chains subject to abuse by buyers
and market makers. This is an inductive piece of research and it is important to
recognise that only analytical generalisation is claimed rather than any statistical
generalisation.
This research opens the way for in-depth studies of some of the above areas of
concern. Research may be carried out using specific cases to study eRA practices at
firm level in detail. It may be worthwhile to investigate on pattern of Pearcy and
Giunipero (2008) about how eRA practices differ across firm size in the Indian context.
Using a third party or conducting eRA in-house may also be studied in detail. Further,
comparative work may be undertaken in different international contexts. Another area
to explore is the supplier perspective as they are often negatively inclined toward eRA,
it will be interesting to investigate how their opinion changes over time, i.e. whether
suppliers of an early adopter, having been exposed to this type of sourcing for
BPMJ a longer time, possess different attitudes toward online bidding events than suppliers
18,3 of a late-adopting buyer. A promising research avenue is exploring how early adopter
firms will evolve as consecutive cost savings become more difficult to achieve. There is
also scope for research in auction analytics, a systematic formal analysis of auctions
that entails:
.
the development of standardized metrics to communicate information before,
530 during and after the bidding event; and
.
the use of data mining techniques to learn from previous auction events the
suitability of various auction formats under different market settings.

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About the author

Samir K. Srivastava is an Associate Professor in the area of Operations Management at the
Indian Institute of Management, Lucknow (India). He is a Graduate in Electrical Engineering
from the Institute of Technology, BHU, has an MBA in Finance and is a Fellow of the Indian
Institute of Management, Lucknow. He has about two decades of experience in teaching, research
and industry and has published extensively in reputed refereed journals such as Omega,
IJPDLM, IJMTM, TQM&BE, IJMR, etc. His papers have received Best Student Paper Award
and McGraw Hill Publishing Best Paper Award. He is also on the scientific advisory board of
Journal of Remanufacturing. His major areas of interest are operations strategy, manufacturing
excellence, HR-operations interface, retail operations, management of technopreneur-owned
firms, reverse logistics and sustainable supply chains. Further details are available at: http://
ganga.iiml.ac.in/, samir/. Samir K. Srivastava can be contacted at: samir@iiml.ac.in

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