Buyers and sellers of commodity products believe that their expertise yields superior results. Buyers and procurement specialists think their understanding of suppliers provides a leg up in negotiations. Sales professionals think they extract the best possible price from each customer. Both can’t be right and neither can be right consistently.
cumbersome process of negotiating custom sales terms, conditions and prices
through bilateral negotiation is inefficient for buyers and sellers of
commodity products. These bilateral negotiations unnecessarily raise
transaction costs for both. However, the intangible transaction inefficiencies
may be even more costly. High transaction costs prevent companies from serving
all potential customers or segments. The inability of the bilateral process to
provide credible market price information can stunt market development,
restrict the pool of potential customers and lead to inefficient capital
markets have revisited a traditional way of selling commodities, the auction.
If designed and conducted appropriately, auctions have the potential to
significantly reduce information and transaction costs, expand a customer base,
and yield the market price signals critical for both new product development
and efficient capital decisions. What distinguishes the auctions of today is
the level of sophistication and customization that technology allows and that
auction experts bring. The trading rules can be tailored to the specific
industry and designed to satisfy a range of potential objectives.
by an auction does require a shift in approach to the sales process. In
bilateral negotiations, buyers and sellers each focus on establishing the price
and terms of the sale. In an auction, the terms of sale for each product or
contract in the auction are standardized, leveling the field for all customers.
When designed properly, the auction reveals the market clearing price, and the
customers purchasing product are those who value the product the most. Buyers
and sellers can trust the process as credible and fair.
2008, farmer-owned cooperative Ocean Spray Cranberries Inc. approached CRA
International (CRA) looking to improve price transparency in cranberry markets.
More than a consumer brands company, Ocean Spray operates in downstream
consumer markets as well as upstream, selling cranberry concentrate to
industrial food and beverage companies. Ocean Spray sought to find a better way
to manage its cranberry concentrate sales.
Spray’s sales process was inefficient. Contract negotiations were cumbersome
and costly for all parties. Once negotiated, the management of a diverse
portfolio of contracts created an unnecessary administrative burden. Individual
contracts had unique terms, conditions and options that complicated contract
management and revenue visibility.
Spray and CRA pioneered CranberryAuction, an online trading platform aimed at
improving the efficiency and transparency of Ocean Spray’s cranberry
concentrate sales. Two auctions have been conducted to date and the results
have been promising. Customer participation has been strong, and more than
400,000 gallons of concentrate has been sold through the platform. Participants
have found the process simple, quick, efficient and fair.
economic conditions have created tremendous uncertainty in all commodity
markets. However, the auction has proved a valuable tool for customers by
assuring that they pay no more for Ocean Spray product than any of their
competitors. As a whole, the auction provides a mechanism for all market
participants â€” Ocean Spray, concentrate buyers, growers and others â€” to
transact business with more transparency and efficiency. This is especially
valuable during periods of turmoil and provides a win-win situation for all
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