Reverse Auctions: Defending Taxpayer Dollars
Defending Taxpayer Dollars
The Department of Defense, like all federal government agencies, is under increasing pressure to improve efficiency, cut costs, and garner maximum utility from every taxpayer dollar. Technology is a major facilitator of these objectives.
“As government agencies continue to adopt technologies to better utilize our fiscal resources, we are hopeful that the public’s confidence in our steward-ship of these resources will be further enhanced,” says Commander Steven Dollase, Director of Acquisition Policy at the U.S. Navy’s Naval Inventory Control Point (NAVICP).
Dollase should know. The NAVICP saves the U.S. Navy millions of dollars per year by using a hosted, e-sourcing solution from Procuri, Inc., Atlanta, GA, to better manage its supplier relationships and monitor costs.
Moving Forward with Reverse Auctions
To date, NAVICP and its parent command, the Naval Supply Systems Command (NAVSUP), have conducted more than 70 reverse auctions, saving an average of about 20 percent.
“We began hearing about reverse auctions in the late 1990s and, as the technology became more prevalent and vendors began to expand their solution sets, we set out to implement this functionality,” Dollase says.
After completing a successful e-sourcing pilot program, NAVICP began evaluating its workload to determine what might make for good reverse auction candidates in the future.
“As government agencies continue to adopt technologies to better utilize our fiscal resources, we are hopeful that the public’s confidence in our stewardship of these resources will be further enhanced.” Cmdr. Steven Dollase, Director of Acquisition Policy at the U.S. Navy’s Naval Inventory Control Point (NAVICP)
“We spent a lot of time evaluating our workload before conducting events because many of our contracts are sole-source to the manufacturers of our weapons systems,” Dollase says.
Dollase’s experience has taught him that reverse auctions are most effective for higher-dollar, competitive purchases, and that specifications must be designed to be as “bulletproof” as possible. This allows all participants to bid on the same item without any misconceptions about the specifications.
To promote clarity, NAVSUP displays on its Web site (www.navsup.navy.mil) the minimum criteria required to consider employing a reverse auction:
- Items to be acquired must be fully and accurately specified.
- Two or more suppliers must agree to participate in the reverse auction. However, an item for which there are only two approved sources of supply may not be appropriate because anonymity among bidders would be lost in such a reverse auction.
- Sufficient time must be available to conduct the acquisition using a reverse auction. Ample time is required to train suppliers and configure the dynamic pricing event.
“These criteria are necessary in order to conduct a successful auction,” Dollase says. “In order to better communicate these requirements, NAVSUP has appointed reverse auction managers at each of their activities to explain the technology and serve as advocates for the tool.”
Introducing a new technology is not an easy process, but with managers on site answering questions, the adoption rate and internal acceptance throughout NAVSUP have greatly improved.
NAVSUP has developed a list of lessons learned that the command shares during “best practice” sessions:
- Reverse auctions are a highly effective pricing tool. However, the reverse auction technique is not meant to drastically change or streamline the procurement process.
- A set period of time for the reverse auction should be established based on the number of participants and the complexity of the acquisition. This period of time need
- not be long, as most activity will occur in the closing minutes.
- It may take time to train the workforce and participating vendors.
- Prior to opening the auction, all participating vendors should log on and verify their connection to the system.
- The tool must offer the flexibility to increase time for receiving offers if there is an offer at closing time. For example, if a bid is received within one minute of the closing time for the auction, the auction period should be extended for an additional minute.
“While the tool has saved us millions of dollars, it is also important to remember the lessons we learned along the way,” Dollase says. “We value each person’s input as he uses the tool and have received positive feedback from buyers and suppliers through the years.”
Auctioning Excess Inventory
Through the reverse auction format, NAVSUP purchased 1,300 computers for the same price estimated for the purchase of 1,000.
After conducting many reverse auctions, Dollase and his team explored the possibility of using forward auctions to sell excess NAVICP inventory with commercial applications.
In September 2002, NAVICP held the U.S. Navy’s first two forward auctions. Four stricken CH-53D helicopters and associated parts packages were auctioned, netting approximately $5 million.
“That’s the power of an e-sourcing tool,” Dollase says. As for its future e-sourcing plans, NAVSUP will continue to “think outside the box” in leveraging technology to maximize the return on its budgetary resources to the benefit of its fleet customers and American taxpayers.
Editors Note: Cmdr. Steven Dollase is the Director of Acquisition Policy at the Naval Inventory Control Point (NAVICP), one of NAVSUP’s largest field activities. NAVICP procures, manages, and supplies spare parts for naval aircraft, submarines, and ships worldwide. NAVSUP’s primary mission is to provide U.S. naval forces with quality supplies and services. The NAVSUP/NAVICP Reverse Auction Team earned a FY 2000 Department of the Navy Competition and Procurement Excellence Award.