Which Of The Given Parts Should Be Taken To Auction Support

which Of The Given Parts Should Be Taken To Auction Support Your Re

Which of the given parts should be taken to auction? Support your recommendation with a total cost analysis. The part Pin and Sleeve should be taken to auction. Based on the excel analysis below, the part Spool does not even have one supplier that could provide saving. But on part Pin and Sleeve, there are many suppliers could provide saving to the company, so those multi suppliers can make the competitive happen, therefore to create a chance for the company to get a lower price. So, the part Pin and Sleeve should be taken to auction.

Do you recommend a pre-auction technical review or a post-auction technical review for this auction? Explain.

Should the auction have a reserve price? Should that price be visible to suppliers? Explain. Yes, the auction should have a reserve price and should be visible to the suppliers. If some suppliers find out that the reserve price is higher than their expect or is lower than their costs, they will not continuously participate in the auction. So a visible reserve price can help the Castun save time and ensure the success.

For each part in Question 1, do you recommend an open descending reverse auction or a sealed-bid first-price auction? Explain.

1. For the Part Pin, I recommend a Sealed-bid first-price auction. There are three main competitors, which is not too many, and their lowest bid prices are 0.19, 0.24, and 0.25. If the company chooses a descending auction, due to the limited number of competitors, suppliers will carefully and slowly reduce their bid prices, which could result in the final bid being just a little lower than 0.24, far from the lowest bid of 0.19. Conversely, a sealed-bid auction prevents competitors from adjusting their bids based on others, increasing the chance that a bid will be close to 0.19.

2. For the Part Sleeve, I recommend an Open descending reverse auction. With five potential suppliers, the environment is more competitive, encouraging suppliers to bid aggressively. For example, if the supplier GlobalTools bids 2.45, HNC might bid slightly lower, close to 2.1. A sealed-bid auction might produce bids between 2.45 and 2.1, possibly ending near 2.1, but the open descending auction encourages more competitive bidding, potentially achieving a lower final price.

Sample Paper For Above instruction

In strategic procurement practices, the decision to conduct auctions, and the type of auction to use, significantly impacts the cost savings and supplier relationships of an organization. Determining which parts to auction involves a comprehensive analysis of potential savings, supplier market structure, and technical considerations. Based on the provided analysis, it is recommended that the company proceeds with auctioning two parts: Pin and Sleeve, and Sleeve, due to their differing supplier market dynamics and cost-saving potentials.

Cost analysis plays a pivotal role in the decision-making process. The Pin and Sleeve part exhibits multiple suppliers capable of offering significant cost reductions, creating a competitive environment conducive to effective auctioning. In contrast, the Spool component lacks suppliers capable of providing meaningful savings, making auctioning less beneficial. The analysis indicates that for Pin and Sleeve, the presence of multiple capable suppliers can stimulate price competition, which could result in substantial cost savings. Therefore, auctioning this part can be advantageous for the organization.

Regarding the timing of technical reviews, a pre-auction technical review is advisable. Conducting technical evaluations before the auction ensures that only qualified suppliers participate, reducing technical risks and the costs associated with post-auction validations. This approach helps in establishing a fair and competitive environment where bids are not compromised by technical uncertainties. For parts with complex specifications, pre-auction reviews are especially critical to ensure that suppliers fully meet technical requirements, preventing future disputes or quality issues.

The implementation of a reserve price is essential. It serves as a minimum threshold below which bids will not be accepted. Having a visible reserve price enhances transparency for suppliers, setting clear expectations and encouraging genuine competitive bidding. If the reserve price is hidden, suppliers may bid uncompetitively, either overbidding out of uncertainty or underbidding in the hope that their bid will be accepted. Making the reserve price visible ensures that suppliers can strategize accordingly and fosters trust in the auction process, ultimately contributing to a successful outcome.

Different auction formats suit different parts based on market structure and competitiveness. For the Pin component, a sealed-bid first-price auction is recommended. Given the limited number of suppliers with bids ranging from 0.19 to 0.25, the sealed-bid format minimizes strategic bidding and bid shading. Suppliers are less able to respond to competitors’ bids, increasing the likelihood of obtaining bids close to the lowest acceptable price. This format promotes straightforward pricing and reduces the possibility of collusion or bid manipulation.

Conversely, for Sleeve, an open descending reverse auction is more appropriate due to the larger pool of potential suppliers (five in this case). The open format fosters a highly competitive environment, prompting suppliers to continuously underbid each other in real-time. Such a setting is likely to yield the lowest achievable cost, as suppliers compete aggressively. The dynamic nature of descending auctions encourages rapid price declines, thus maximizing savings. This approach also offers the advantage of transparency and immediate feedback, motivating suppliers to bid their best possible prices.

In conclusion, the strategic selection of auction parts, formats, and technical reviews significantly influences procurement outcomes. For Pin and Sleeve, auctioning with sealed bids and pre-auction technical reviews, complemented by visible reserve prices, proffers an optimal balance of competitiveness and risk mitigation. For Sleeve, an open descending auction can harness supplier competition more effectively, providing the potential for greater cost reductions. These decisions should align with the overall procurement strategy, supplier market conditions, and organizational goals.

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