Bundling for B2B procurement auctions: current state and best practices

Abstract

This study provides an overview of the current state of practice in bundling multiple items together for B2B procurement auctions. On the basis of insight obtained from 30 case study firms and an exploratory survey, the paper presents conditions, uses and contents of bundles and discusses the benefits and challenges of bundling. Successful approaches are illustrated from participating firms. For the interested practitioner, the paper outlines how this activity should be integrated into the firm's strategic procurement process. Furthermore, a proposed framework views bundling in the context of applicability and suggests generalisations. In addition, a scoring model is proposed, which provides guidance for the practicing professional in answering the question whether to bundle items together or not.

The use of bundling in B2B online reverse auctions

“…The above findings verify that careful auction preparation and bundle building is vital to a successful event. Prior research has already suggested that up‐front preparation for a reverse auction is often more intense and longer when compared to an equivalent offline purchase, and appropriate strategies and process steps were outlined (Schoenherr and Mabert, 2006). Careful analysis of the supply base needs to build the foundation for deciding which items to combine together.…”

“…Challenges encountered when designing bundles for online reverse auctions include finding the best approach or process for creating the bundle; for example, little specific guidance in terms of a process map has been given in published sources so far. Additional impediments can be in the form of change management necessary to convince purchasing personnel to embrace the concept of bundling and realize its benefits, as well as lack of resources in terms of employee time available to design the bundle or in terms of monetary funds to conduct market research and obtain knowledge (Schoenherr and Mabert, 2006).…”

“…For example, large bundles can lead to increased leverage (e.g., Kaufmann and Carter, 2002) due to synergies, but care must be taken to maintain a homogeneous RFQ when adding additional items to the bundle. As such, considered items should be grouped into attractive bid lots (Mabert and Skeels, 2002), where items included should be characterized by similarities in manufacturing processes or delivery regions (Jap, 2002), or application or technical requirements (Schoenherr and Mabert, 2006). When the individual items are very different, or a wide variety of capabilities is needed to produce them, the bundle is less attractive to suppliers (Mabert and Skeels, 2002), leading to overall poorer bundle performance.…”

“…For example, Mabert and Skeels (2002) list as favorable reverse auctions attributes the availability of many qualified bidders (at least three), excess capacity in the supply base, and its electronic enablement. These conditions can improve performance due to the heightened competition (Mabert and Skeels, 2002), which is increased when many suppliers are able and willing to bid on the business (cf., Parente et al, 2004; Schoenherr and Mabert, 2006). This is confirmed by Smeltzer and Carr (2003), whose study relied on interviews with purchasing professionals practicing reverse auctions.…”

“…Moreover, while purchasing managers and buyers have performed bundling for centuries, little systematic evaluation has taken place concerning how to guide this important decision, or what variables may come into play and ultimately impact purchase performance. This is surprising, since bundling can be an important element in the general procurement and RFQ development process (Schoenherr and Mabert, 2003, 2006).…”