E-Sourcing: Impact ff Bidding Behavior and Non-Price Attributes

While there is an ever increasing adoption of e-sourcing, where the buyer auctions procurement contracts to a small group of pre-qualified suppliers, a critical question to its sustainability remains: Does it damage long-term buyer-supplier relationships? We explore this question by developing a conceptual model of non-price attributes, bidding behavior and auction outcome. We examine in detail reverse auctions of a major buyer in the high-tech industry during 2002-2004. Our data is unique as it not only captures the entire auction history, but also records data of postauction cost savings calculation and final contract awarding decision, which are critical events in e-sourcing. Our data covers bidding history of 233 contracts from 36 auctions; 106 suppliers submitted a total of 3,206 bids. This allows us to cluster bidding strategies of industrial participants. Another particular benefit of our data is that it has information about the bidder’s type (either a bidder is a preferred supplier or a non-preferred supplier). This is used as the key indicator to proxy non-price attributes, along with relationship, and previous auction experience. We uncover bidding patterns exerted in reverse auctions, and we find that the distribution of bidding strategies is mediated by non-price attributes. More importantly, non-price attributes, in conjunction with bidding strategies, have a significant impact on the auction outcome, as measured by the supplier’s final bid, the buyer’s cost savings and the supplier’s contract winning probability. Specifically, (1) at the contract level, and controlling for supplier bidding strategies, final bids of preferred suppliers depend on their bidding strategies. While preferred suppliers’ final bids are higher when using three out of the five bidding strategies, their final bids are lower when using the other two bidding strategies. (2) Within winners, buyer’s cost savings are lower from preferred suppliers. (3) Within winners, preferred suppliers are about three times more likely to win a contract than non-preferred suppliers, on average. These findings make evident esourcing via reversion auctions does not necessarily damage; rather it may enhance long-term buyer-supplier relationships.