Introduction:
Mars, Incorporated initiated its business by making butter candies and sold it door-to-door. In this way, the company started its business and now became the leading global multinational company in the world. It is world’s largest privately owned business that is engaged in purchasing of almost $4 billion of raw materials per annum. The vice president of the company came to realize that majority of the companies are saving their cost of purchasing raw materials through online auctions. To gain benefit from it, the company puts a request for quote or set up RFQ for the bids on the procurement website.
1. Why would Mars develop this online auction system? What are some of the advantages and disadvantages of this system?
The pros and cons of purchasing from online auctions are as follows:
One of the primary advantages that companies can get, is the level of transparency. In an online auction, a bidder cannot claim buyer to be biased or partial with another bidder. Often, a situation came when one supplier was likely to win the bid, but then another supplier came and ask for the lowest bid and eventually wins. This whole scenario offends the previous supplier, but the buyer does not have to worry about it because all the process, terms and conditions were known from the advance. Moreover, online auctions are helpful in terms of making partnerships and contracts with new suppliers of the company as well. In this way, Mars Inc. would be able to get access of suppliers from all over the world. Mars follows its Mutuality principle that can also backfire it, but if the company is making its relationships with suppliers wide then, it doesn’t need to make partnerships with few specific suppliers because they may take Mars for granted, and denies to offer the best deals.
Further, the online auction is known to be one of the most well-situated and easy to access place in comparison with a traditional auction. It is convenient in a way that it provides a single platform where a company can put up their requirements. Because of online auctions, companies do not need to go to every supplier to take their bids. It is also reasonable in a way that it does not require face to face meeting with every potential supplier. This factor helped Mars in doing efficient procurement by reducing its traveling time and cost as well.
Despite the benefits provided by online auctions, there are certain drawbacks of it as well. One of the major flip side of online auctions is disclosing each and every detail of the company in front of all the bidders. Through online auction, anyone can identify the inventory level stock and prices of the company’s stock. In many cases, disclosing cost and inventory related information in front of suppliers are not beneficial and desirable as well. For instance, Quality is one of the major principles followed by the company. If the company seeks to the lowest bid, it may be perceived as if the company is compromising on its core factor.
In addition to this, the company needs to keep in mind other factors as well that is the lowest price with quality. While seeking for the lowest bid, it is important to keep this in mind that the quality of the raw materials should not be compromised as low prices comes mostly with low-quality products. However, another benefit of online auction is the instant availability of information. The information is not only available, but it is up to date as well that provides Mars with most recent information about the suppliers and the bids quoted by them. On the contrary, it may negatively affect the relationships with the older suppliers of Mars as the relationship with suppliers is built on mutual understanding and trust.
2. In any single round of the auction, how should Mars determine which bidders "win" and which bidders "lose"?
Most often, procurement manager in the industry use auctions for the purchase of raw materials. Before ordering, the manager of the company needs to analyze all the specifications related to the product and constraints that may arise in the beginning and during the process.................
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