Prof. Anand Nair, a good friend of mine had published a paper on this topic and has provided excerpts in his blog. My thoughts on the same are below.

 Internet-enabled Auction Mechanisms in Supply Chains

In a paper that I published in 2005, I assert that in its present state of affair an electronic marketplace would become nothing but a virtual place where the competing firms would be indulged in price wars to maintain their presence. A prolonged spur of activities in this direction would lead to a stalemate where the winners are losers. In the long-run it is important that the decisions associated with electronic auctions must be based on more than bargain-basement price tags. The business intangibles focused on developing a strong buyer-supplier relationship, will determine the quality of the purchase contract.

To survive, many exchanges are already starting to change business strategies, shifting from public auction-type exchanges to private exchanges run exclusively for a specific shipper and its core carriers. Others are transforming themselves into application service providers (ASPs) that rent software solutions online. Many are looking to transform themselves from public exchanges that are open to all comers into private exchanges that provide a platform for a specific company and its trading partners to collaborate on the Internet. A lot of them are migrating to collaborative logistics networks. The focus is moving away from a spot exchange to providing the infrastructure for companies to collaborate with their existing partners.

Business NOT as Usual: Ideas, Insights & Intuition: Internet-enabled Auction Mechanisms in Supply Chains

Some years ago few of my friends had started up on a venture to do a similar auction enabled exchange for basic steel products - long and flat products including Alloy steels, but it was too early at that time and there wasn't much buy-in. Eventually many exchanges have come up since then, but most of them typically revolve around auctions based only on price or price&delivery of readily available stock.

An exchange platform for Industrial goods functions much differently from eBay type auction sites. This is because, transaction of industrial goods usually involves multiple parties such as the seller, buyer, inspection agencies, multi-modal shipping companies and banking service providers. A successful transaction involves frequent collaboration between all these parties and relationships are built at many levels that transcend typical buyer-supplier relations.

Unlike a traditional auction site where goods are available in stock to be transacted, an industrial product is often times made to order for a customer, and the process of negotiating the terms in an inquiry including delivery schedules is a collaborative process in itself.

Most industrial goods and consumables are usually certified by third party inspection agencies such as BVQI, SGS, DNV, UL etc., prior to shipments. Most auction enabled sites do not provide the capability for these inspection agencies or suppliers to upload inspection reports and test certificates or other related documents.  Some of the additional documentation includes packing lists and Bill of materials (in formats that are different from ERP/SCM defined ones), container loading certificate, mate’s receipt, multi-modal bill of lading, documentation about container placement in the vessel,  bank documents such as letters of credit and bills of exchange for negotiation, documentation for payment of statutory tariff, documentation for customs etc. Unfortunately, I am not aware of sites that actually provide all these capabilities, hence it ultimately narrows down to auctions where suppliers compete only on price, leaving other aspects of the transaction to be done outside of the electronic marketplace.

Ideally such sites (or marketplace) should facilitate collaborative interactions between all the parties involved in the transaction. Also such systems should be capable of integration with shipper’s product tracking applications for a view into route planning and logistics. Furthermore such sites should also have records management capability for product traceability in case of defects and recalls.  This would be similar to the case-management applications available with insurance companies. Only when such features are provided, can internet based electronic market place can go beyond the typical price based auctions and facilitate meaningful relationships between all parties involved in an industrial transaction.