Discover your next big idea at PACK EXPO Las Vegas this September
Experience a breakthrough in packaging & processing and transform your business with solutions from 2,300 suppliers spanning all industries.
REGISTER NOW & SAVE

Corrugated comes over the Internet

Building materials supplier Owens Corning is convinced that procurement can be conducted most efficiently and cost effectively via reverse auctions over the Internet.

Watching the bid unfold: John Gellatly (left) and Satish Bhagwat of Owens Corning join Kara Csensich of FreeMarkets on bid day.
Watching the bid unfold: John Gellatly (left) and Satish Bhagwat of Owens Corning join Kara Csensich of FreeMarkets on bid day.

“When we looked into online technology for opportunities where we could compress costs, packaging procurement was quickly identified as a good candidate.” That’s John Gellatly’s summation of how Toledo-based Owens Corning entered the world of packaging procurement over the Internet. Gellatly is global sourcing technology leader at this building-materials supplier, whose insulating materials are hawked by the well-known “Pink Panther” cartoon character. OC is mighty impressed with its early forays into online reverse auctions. In fact, management aims to eliminate traditional competitive bidding practices company-wide by year-end. “The goal is to conduct auctions online for the whole $3.5 billion we spend in competitive bids,” says Gellatly.

Pallets and bulk bags are among the packaging components that OC has put up for bids over the Internet, and stretch film is being considered as well. Corrugated is another example.

Last August, through a Pittsburgh, PA, company called FreeMarkets (www.freemarkets.com), OC conducted a bidding event over the Internet for all corrugated packaging material used company-wide at 21 U.S. plants. When the cyber-dust had settled, OC had inked two-year contracts with 17 corrugated suppliers.

According to Gellatly, the move from traditional to online procurement netted a 10% savings in corrugated costs. Why? Because online bidding, says Gellatly, “lets the market determine what is a fair price for a product.” The fee paid to FreeMarkets by OC is a percentage of the dollar value of the contracts.

Developing the RFQ

So how does a reverse auction unfold? Step one in the process is the development of a bid specification so that a Request For Quote (RFQ) can be sent out. Allen Veeck, senior market maker at FreeMarkets, describes the process.

“We look at a list of companies our client is currently buying materials from and then broaden it considerably to form a large base of suppliers, some national, some regional, some very local. We share this list with our client, who can decide which suppliers should be kept and which ones deleted. We then invite the suppliers on the list to bid on the RFQ. It’s very detailed, including art requirements, payment terms and delivery requirements. If a buyer has proprietary information he doesn’t want out in the public domain, he can have suppliers sign a non-disclosure agreement before they’re even allowed to see the RFQ,” says Veeck.

Finally, it’s bid day, conducted over the Internet by invitation only. BidWare® software developed by FreeMarkets permits the buying team to identify each supplier as bids are posted, but bidders remain anonymous to one another. Essentially it unfolds just like any other auction, except for two things: The bidders are seated at far-flung computer terminals instead of in an auction hall, and the bids move progressively lower rather than higher.

On the bid day for corrugated last August at OC, each plant’s corrugated requirements represented a single lot. Suppliers were free to bid on one lot or all the lots, but each lot was bid separately.

“One advantage of this approach is that it lets suppliers with regional as opposed to national competencies make very competitive bids for lots in the regions where they are strong,” says Gellatly.

The bidding on OC’s first lot began at 11:00 a.m. and was scheduled to end at 11:30. The other lots followed, but these were scheduled to last just 10 minutes each. Veeck says bidding on the first lot is always kept open longer to make sure there are no problems getting everybody connected online.

2024 PACK EXPO Innovations Reports
Exclusive access: Packaging World editor-curated reports revealing PACK EXPO's most groundbreaking technologies across food, healthcare, and machinery sectors. Each report features truly innovative solutions selected from hundreds of exhibitors by our expert team. Transform your operations with just one click.
Access Now
2024 PACK EXPO Innovations Reports
Coding, Marking, and Labeling Innovations Report
Explore our editor-curated report featuring cutting-edge coding, labeling, and RFID innovations from PACK EXPO 2024. Discover high-speed digital printing, sustainable label materials, automated labeling systems, and advanced traceability solutions that are transforming packaging operations across industries.
Access Report
Coding, Marking, and Labeling Innovations Report