One step forward ...

Will Internet bidding signal a return to the "lowest price" trend of the 70s?

by R. J. Schwind -- Industrial Distribution, 1/1/2001

Over the past 10 years, distribution has experienced some amazing changes. EDI and bar code scanning have replaced paperwork. Electronic billing and payment have replaced invoices and paper checks. Algorithms electronically calculate inventory levels. And a computer can now maintain the latest revisions to thousands of drawings for hundreds of customers.

But what was the driving force behind all this innovation? My career started over 30 years ago and I have witnessed three significant industry trends or phases that I believe left a significant impact on American commerce.

In the 1970s, the major focus was lowest price. During this period, we witnessed a flood of cheap, foreign products that forced American manufacturers to drive component prices down, resulting in poor quality products that either fell apart or rusted through before they were paid for. Price was king and if you couldn't meet it or beat it, you lost it. Was industry better off for having gone through this phase? If you ask anyone old enough to remember, they would just as well forget it.

The 1980s brought about an emphasis on total quality. The bad experiences of the 70s forced both foreign and domestic manufacturers to produce quality products that lasted. Manufacturers insisted that suppliers comply with their total quality standards that utilized such methods as statistical process control or statistical quality analysis. Price was important, but quality ruled. Price increases were few and far between, but if you could demonstrate true quality, you could maintain and grow your business. Did this have a positive impact on business? It would be hard to find many who would say no.

In the 1990s, American industry focused on total cost. Supply chain management, just-in-time services, integrated supply and electronic commerce were developed to reduce total acquisition and carrying costs. Distributors and manufacturers worked together to reduce the total cost of doing business with each other. Price was still important, quality was demanded, but total cost declined. Was this good for American business? The 90s represent the fastest growing economy with the lowest inflation rate in 30 years.

But what will happen in this decade? A new approach to product sourcing is reverse auction Internet bidding where multiple suppliers competitively bid prices down on the promise of large volume sales. Is this a resurgence of the lowest price trend of the 70s? In the 80s and 90s, distributors and manufacturers worked together to develop strong corporate relationships committed to improving quality, expanding integrated services and increasing technology.

Does this trend toward online bidding between unknown distributors and manufacturers threaten the accomplishments of the 80s and 90s? Those who believe that they have found the final solution must remember, there is no such thing as the lowest price! Somebody somewhere will always quote it for less. However, a lower price may not afford the same quality products or services developed over the last 20 years. Is history destined to repeat itself? If distributors and manufacturers can't work together on this new method of doing business, it probably will.

R.J. Schwind is president and COO of ACS/SIMCO, Lenexa, Kans.