Online auctions contain costs

Online auctions help plant professionals contain costs and do more with less.

By Russ Kratowicz, P.E., CMRP, executive editor

Plant maintenance and engineering professionals are responsible for procuring goods and services necessary to improve the plant or to keep it functioning. When that situation arises, the assets or services required are generally well defined. The plant professional then functions as a hunter, searching for something to fit a predefined mold.

The role of the hunter stands in contrast to that of the plant professional wandering the aisles of a trade show looking for great goods or services that might be useful in the plant. That former hunter now acts as a gatherer, gleaning fruits and berries from wherever they may present themselves.

Since there is a very high probability that the out-of-pocket expense involved in attending a trade show will greatly exceed the potential value of the ideas brought home, trade shows are not the most fertile ground for the gathering of berries having any significant financial benefit.

Nevertheless, the plant professional still must contain costs and do more with less. One possibility for doing this is by purchasing goods at auction. However, traveling to an auction site is just as costly as attending a trade show, and there is no guarantee you will come home with what you wanted. So, it might make sense to investigate online auctions in which you can participate from the comfort of your own office.

Glossary

What kind of auctions are we talking about? As you might suspect, several varieties of auctions exist. Probably the most familiar is the kind of auction associated with Christie’s and Sotheby’s well-publicized sales of art objects — rare and costly treasures and the personal effects of the famous. The television news clips show a room full of people bidding up the price of the item currently on the block. You know the routine — “Going once. Going twice. Sold to the gentleman in the chartreuse tuxedo.”

Since there is a very high probability that the out-of-pocket expense involved in attending a trade show will greatly exceed the potential value of the ideas brought home, trade shows are not the most fertile ground for the gathering of berries having any significant financial benefit.

– Russ Kratowicz, P.E., CMRP, executive editor

This manner of selling is called an English auction, or open bid auction. The bidding starts with some nominal amount and everyone participating hears the bidding history and the largest bid being offered. When the dust finally settles, the highest final bidder goes home with the goods.

There are, however, at least six other styles of auctions. The folks at the University of Mannheim in Germany post at http://www.sfb504.uni-mannheim.de concise explanations of the various classical auction types. Here you can learn about first price auctions, second price auctions, Dutch auctions, all-pay auctions and common value auctions.

Reserve versus absolute

It is possible that you could be the high bidder, perhaps high by a wide margin, and still not get the goods. If you were bidding in a reserve auction, the seller has in mind a minimum acceptable bid. If the amount bid is below the minimum, the seller retains the right to withdraw the item and not sell it.

An absolute auction, on the other hand, results in a sale, no matter what. The price some bidder is offering for the item is what the seller is obliged to accept. If there are few bidders in an absolute auction, it may be possible to acquire an item with a value that greatly exceeds the final auction price.

Getting organized

One should not simply jump into the auction game without a good reason for doing so. Inherent in the very definition of an auction is the strong presumption that there are participants other than you, and each of those other folks are playing for keeps. Like any adventure that requires the infusion of real-life money, one should have a good strategy as a defense against the possibility of getting fleeced.

There is an entire field of academic study, called game theory, for optimizing your outcome in multi-player games. An auction is only one example. Remember, those other bidders are adjusting their strategy in response to how you act in the game. Your response to what they do gives them even more information for optimizing a strategy.

You might as well do the same. Check out the final third of the posting at http://www.mba2.com/gametheory.shtml where you will find the fundamentals of game theory as they apply to auctions.

It’s what you need to know

One of the risks in playing the auction game is informational asymmetry. One party may know more than the other. It is like the situation you face when buying a used car from someone you don’t know. The current owner knows more about the vehicle than you know, and you are never going to find out those things unless you buy the car. By then, it may be too late. On the other hand, someone selling an old manuscript from Grannie’s attic trunk might not realize that it is a rare antique. There are risks on both sides of the transaction. In the auction game, it’s best to know more than the other bidders.

It’s what they need to know

Since we are using real money on these sites, every one of them requires you to register before you can participate as a buyer or seller. There is no anonymous trading in the online auction game. Some sites allow you to browse around before getting involved, others demand that you register just to see the action.

e-Bay

Very little at this site qualifies as a business-to-business deal. Almost everything there is classified as consumer goods, but you can browse without registering. The listing of auction categories goes on for about 2-1/2 pages. This site provides some amusement since many of the would-be sellers do not understand the concept. Take, for instance, the person trying to auction a soldering tip for $250 or the person offering a padlock with a minimum bid of $3. In fact, many of the items have minimum bids that correspond to pocket change.

Since you can get new identical items at the local hardware store, it is not surprising that there is no bidding activity on most of this stuff. But, if you want some entertainment, go to http://www.ebay.com during lunch. Be sure to read the page on fees, http://pages.ebay.com/help/sellerguide/selling-fees.html.

Trade2Gain

This Web site — http://www.trade2gain.com — bills itself as “India’s First Business-2-Business Internet Auction Market Place.” I am not sure how much action it will get from the States, but the people running this site are expecting worldwide participation, based on the registration screen. The listing of the business-to-business categories consumes about four pages when printed, but many of the categories have no active entries. They may be ready for auction action, but not much is there to be auctioned.

The idea is that the seller agrees to pay a fee to Trade2Gain when the sale is completed. I searched the site, but could not find any explicit reference to how much of a fee is involved. As an aside, the site might allow smokers to strike a bargain. You can bid on a minimum of 52,000 kilograms of tobacco for about $1.40 per kilo. If you are the lucky bidder, it will come to you in bales weighing 180 kilos each. I guess you better know how to roll your own.

Reverse auctions

In a reverse auction, the buyer issues a request for quotation (RFQ), and the sellers line up to bid for the right to furnish the goods or provide the service. The sellers at these sites are offering new hardware, not used equipment.

One such example is The PurchasingCenter.com Web site found at http://www.purchasingcenter.com. Buyers wishing to enter an RFQ need to register before they are allowed anywhere near the action. However, one can access a small regular auction section without registering. When I checked it out, it appeared that some distributor was clearing out a lot of material of one brand name. The seller was using what the site calls a classified listing in which buyers communicate offline to decide on a price. That is not much of an auction.

Sorcity.com Inc. has another online reverse auction at http://www.sorcity.com. Getting the RFQs listed is easy enough, but for a seller, reviewing them online is a bit cumbersome. At this site, the seller pays the Web site a fee upon completion of the transaction.

Regular auctions

The first example is Liquidation.com. For a buyer, getting in on the action at http://www.liquidation.com is free. This site bills itself as “Your Global Marketplace for B2B Surplus,” but it seemed to have a shortage of industrial products in the lineup. In any case, the seller pays no more than $25 to get products on the block, and 10% of the final gross transaction amount. When I checked the site, one industrial entry up for auction was five million feet of chain. Beyond that, most of the offerings read more like retail business-to-business offerings.

Next is iMark.com, which deals in used industrial equipment. For buyers, the transactions are free, but the seller pays five percent. The broad equipment categories on the left side of the home page lead to ever-finer gradations of items offered. You can browse http://www.imark.com at will, but to buy or sell, you must register.

The third Web site in this category is S/R Auction, which lists machinery and machine tools, electrical and power equipment and process equipment. Few of the items I browsed had any bidding history, so it is difficult to report on the level of activity. This site —http://www.srauction.com — is free to buyers, but sellers pay a sliding scale fee based on the transaction amount.

Overview

You will find many auction sites. Each of them lists many categories of products or services. When you investigate the content of these categories, you will find many of the entries have no active auctions taking place. On the other hand, when you find categories full of items on the block, you will find most of them show zero bidding activity.

In fact, some sites will reveal the closed auctions — those whose time has run the course and are no longer active. Upon investigation, you will find that most of them closed without any bids being placed. I guess these auction sites are so far ahead of the curve that the rest of us may never be able to catch up, or the marketplace is telling them something that they are not hearing. It may also be true that people are not particularly trusting when it comes to playing with real money on the Web and dealing with people they don’t know.

Nevertheless, for you gatherers out there in readerland, keep your eyes open. You might be able to grab the berries without any competition whatsoever.