Postal Service first to try online reverse auctions
- By William Matthews
- Apr 17, 2000
The U.S. Postal Service has put its stamp of approval — at least tentatively — on online auctions.
USPS next month plans to receive bids via the Internet when it picks
suppliers for pre-printed and pre-stamped envelopes, for fuel and for leases
on truck trailers.
The move makes the Postal Service the first federal agency to wade into
the fast-growing realm of business-to-business Internet auctions, where
prices are bid down instead of up.
The Postal Service hopes to shave 10 percent off the cost of envelopes,
$5 million to $7 million a year on fuel and $3 million to $4 million a year
on trailer leases, said USPS spokesman Gerry Kreienkamp.
FreeMarkets Inc., a pioneer in business-to-business online auctions,
will direct traffic through this intersection of e-commerce and "snail mail."
"This is a test to see what kind of savings we can get from these reverse
auctions," Kreienkamp said.
Business-to-business auctions are vastly different from the standard
procurement process in which contracts are awarded on the basis of sealed
bids and bidders have only one chance to submit the winning offer.
Online auctions are "dynamic," meaning companies typically submit several
bids over the course of an hour or two. The live competition tends to drive
the price steadily lower as bidders jockey to win a contract. The auctions
often are referred to as "reverse auctions" because prices go down rather
In place of the Postal Service publishing the usual requests for quotations
and companies responding with a bid, FreeMarkets will assemble a pool of
bidders and "pre-qualify" participants to ensure that they can meet the
Postal Service's requirements, said David McCormick, FreeMarkets' vice president
for public-sector business.
Competition among bidders typically cuts costs 2 percent to 25 percent
in auctions conducted for businesses and state government agencies, McCormick
Postal Service auctions will be "hosted" in FreeMarkets' Pittsburgh
headquarters, but the companies interested in selling envelopes or leasing
trailers to the Postal Service won't be there. Instead, they will submit
bids via the Internet from computers at their home offices.
Postal Service officials won't be there either. They will be "passive
participants," probably watching the action on computer screens at the Postal
Service headquarters in Washington, D.C.
The Postal Service beat the General Services Administration and the
Defense Department in moving online to buy commodities. GSA has been planning
to test online auctions this spring, but has not set a date. And DOD says
online auctioning "has potential" to save the military money but has no
schedule for starting the service.
The Postal Service probably also set a speed record for decision-making.
McCormick said FreeMarkets had been "in discussions" with the mail service
about conducting online auctions only since January.