Are Reverse Auctions good for the Print Industry?

So the question has come up again; "does Cross-Wind do Reverse Auctions?" My biggest concern is why are buyers so infatuated with reverse auctions? I find it hard to believe that anyone in the print industry would even consider these. Have the lessons not been learned? I really would like further feedback on this from the print supplier/printers perspective.

I can tell you that I have personally sat in on reverse auctions with a printer, as an observer and I can tell you it was quite painful for the print supplier. The auction was a long duration auction lasting 3 days. The supplier reviewed the specifications and had questions as did other suppliers apparently by the feedback response that was given to the questions. Of course no one really wants to ask a question about the specs on an open forum as that may give away something none of the other bidders had considered and if the customer is not accepting questions any other way then the questions often go unanswered. The specifications in the suppliers eyes were not complete so therefore they felt they were unable to provide the best pricing and without being able to consult directly with the customer the price would not be complete. Also pricing did not start coming in to the auction site until the last 3 or 4 hours and then got really heated in the last few minutes which by looking at the price differences that printers were providing there was margin the whole time. In addition, the customer was fairly savy in that they were using a ringer. They had a supplier that truly had no intention of doing the job but was there strictly to drive the price as low as possible. Every time pricing was submitted the ringer would respond within a minute or two and counter the price by a percentage point. So if a print supplier was truly interested in the job they were forced to drop the price even further if they wanted it. The print supplier I was working with had decided early on that they were not going to get the work and that this was a waste of their time. The supplier estimated the job with their standard markup, a discounted price, and with their cost. When the auction started he offered up his discount price immediately which was a 0.5% profit margin. Within an hour he countered with his cost price which meant no profit on the job. One minute later the ringer countered that price which would have put the print supplier at a 1% loss. The right thing to do for the printer would have been to walk away at that point. However the printer knew e needed to fill the press and chose to go .5% lower (now at a 1.5% loss.) With a half hour left in the auction another supplier countered his offer. The printer while frustrated chose at this point to walk away from the job. Now once the price went below cost the printer spent most of his time that afternoon trying to run different scenarios as to how they could cut cost on the project to win the bid. This was a very painful experience for the supplier as they met and engaged the production department and pre-press in devising ways that cost could be trimmed, but without the answers or the ability to ask questions of the customer their was no way to respond without taking a complete loss on the project. The supplier walked away frustrated and realized later how much time was truly wasted in trying to respond blindly to the auction. This supplier politely turned down the next invitation to a reverse auction for this customer, and when the customer called to ask why, they politely told them that if this was the way they intended to do business from now on that they were not interested in being a supplier for them.

The customer lost out on having a consultative resource available to them. The bottom line for the supplier was that if doing business meant doing it at a loss they were not willing to risk losing their company to satisfy a customers need to save money. There is a balance and companies are in business to make money.

What are your thoughts? I am interested in hearing what Printers and Print Buyers think regarding using and completing Reverse Auctions. Post your comments! All will be posted. Thanks!