Eking out an E-Commerce Existence.

While we're feeling vulnerable at the mention of online casting auctions these days, lessons from the past might lend some perspective. In the first decade of our nation's existence, stocks were traded by merchant auctioneers who street-peddled securities. Being a nation of enterprising people, of course, it wasn't long before someone found a way to make a buck doing it as a broker. Then, in 1792, 24 brokers agreed to trade under a buttonwood tree outside 68 Wall Street, charging commissions and giving preference to each other in negotiations. Thus was the start of the New York Stock Exchange, in the process putting the merchant auctioneers out of business. When the stock ticker was introduced in 1867, the technology brought new sophistication to the process as well as national accessibility.

We may be feeling like we're getting squeezed by these auctions (not unlike the merchant in the above example), but we're not alone. Unfortunately, however, for those of you who are already red-faced from those "Dear Supplier" letters demanding price reductions of up to 6% (even retroactive), this latest trend can't be doing much for your blood pressure.

These online reverse-auctions (so-called because suppliers bid on what they'll take rather than buyers bidding on what they'll pay) are being conducted by firms such as freemarkets.com, suppliermarket.com, and marketsite.net, not to mention those of the likes of the Big Three. These sites square industrial suppliers against each other to secure a downward adjusted price by the time the auction closes.

With industrial parts purchases representing 35% of every sales dollar for manufacturers, electronic auctions are reportedly saving firms 10-25% in transaction costs, and OEMs are taking notice. Among them are John Deere, which bid out $26.5 million in components in a single online event last spring and Emerson Electric, which is expected to bid $1 billion of its procurement budget this year through online auctions.

This is how the process works: these auction "houses" distribute a request for quotation and invite suppliers from all areas of the globe to participate. Once pre-approved (extent of this varies widely), you review the print and can do your casting homework. Provided that your price is below the given threshold, on bid-dayyou enteryour price and then "watch the show" unfold. You'll see your foundry's bid on a radar" among the other unidentified suppliers and watch the price creep lower, particularly in the auction's closing minutes. Freemarket's 36-year-old founder has made no secret that it places the power with the buyer, that incumbent suppliers are likely to lose business and that everyone is forced to lower their prices.

Not that we can expect anyone else to care, but there's reason for metalcasters to be concerned. With technology removing many barriers, your customer now has access to offshore foundries (and vice versa), and unqualified foundries or those with error-ridden costing systems drive down final pricing, even if the job is ultimately awarded to the No. 2 or 3 bidder. Plus the yet-imperfect system encourages aggressiveness, even if in error. One aluminum foundry executive shared how he was told by a "market-maker" during a particular lot bidding, "I don't care if you don't pour iron, enter a price anyway.

Another president, who expects his iron foundry to be required to participate via auction very shortly, said "this price-only approach precludes all the stuff that we've been told to concentrate on, such as predesign, simulation modeling and assembly."

Atchison Casting Corp. (ACC) executives Tom Armstrong and Charlie Armour recently shared their experience with six such auctions, three of which put ACC's current jobs on open bid. "We needed to see where it was going," said Armour, noting that a handful of customers have already embraced the auction concept. "Web-based purchasing is only going to become more efficient and productive." To date, ACC has seen a minor positive net change in sales.

Several people are praying that the "purchasing warrior" trend will quickly correct itself, but it seems just as likely that it's here to stay. With refinements, hopefully these auctions will account for factors beyond unit costs-the things that truly separate operations.

For pick-up. "This warns us that we must be more competitive than ever," said Armstrong, referencing Darwinism. "Information is now so rapidly available that the low-cost producerwill get the work in the end." For all but maybe the smallest of foundries, protection might be found only through specialization and unparalleled efficiency. In other words, being the most totalcost-effective foundry in a particular casting segment. This Information Age will demand it.

The most polite response I heard upon asking foundrymen to cite an upside of these auctions is "we haven't found it yet." Upon being called into the ring, however, you probably have few options, short of telling your customer that his pattern is waiting on the dock

Michael J. Lessiter

Editor/Publisher