Clothing industry: Reverse Auctions sharpen competition . An Article written by Steve Hirsch – International Trade Forum – Issue 3/2005
Steve Hirsch is a Washington-based freelance journalist, writer and editor specializing in international news. He is the former Editor-in-Chief of UN Wire.
Reverse Internet auctions put clothing manufacturers in competition with one another to offer buyers low prices. By teaming up with textile mills and trim suppliers, manufacturers can bid prices that won?t wipe out their profit margins. In a move to cut buying costs, some big clothing retailers now require their suppliers to participate in reverse Internet auctions. They use these auctions mainly for sourcing large volumes of supplies and for standard products with easily defined specifications, where there are a minimum number of suppliers for the products, who can bid against one another.
For buyers, reverse auctions can spur dramatic cost savings and long-term efficiency improvements in the purchase of goods and services. For example, procurement charges account for about 60% of the cost of woven shirts; saving even 5% in costs is, therefore, important. As well as lower prices, buyers can also reduce negotiating times with manufacturers. Since buying represents a substantial portion of retailers? business activity, automating and streamlining the process can allow buyers to focus on other aspects of their job.
Cooperate with primary suppliers
For manufacturers, reverse Internet auctions make prices transparent, which encourages competing suppliers to lower their prices to win orders. Up to 75% of the cost of an item of clothing is made up of fabric and trims, so clothing manufacturers need to cooperate closely with suppliers of these primary items to succeed in Internet auctions.
In fact, a close strategic partnership is imperative. If clothing manufacturers bid on their own, their whole margin can be eliminated immediately. Competitors with a strategic partnership, however, have the margins of the clothing and trim manufacturers and the fabric mill to manoeuvre with. Ideally, all the partners should participate jointly in the auction to analyse bids and discuss how they can further cut prices.