Snedeker Global Cruises
Introduction
Snedeker Global Cruises is looking to reduce cost through its procurement costs. The Senior Purchasing Manager assigned the newly supply chain manager, Brandt Womack, his first task of implementing an E-auction Development Program. Through the EDP, it would determine products suited for an e-auction. Brandt now will have to determine the necessary steps to conduct a successful auction and the impact it will have on the suppliers and their relationships.
Snedeker Global Cruises was incorporated in 1986, based in Miami, serves the contemporary and premium segments of the cruise vacation. Their cruise company has 35 cruise ships and over 70,000 berths, offering a variety of itineraries to Hawaii, Alaska, Asia, Australia, the Caribbean, Europe, Latin America and New Zealand.
SGC continuously aspires to reduce their procurement costs in sourcing the products and services needed for the cruise ships operations. In the past, each cruise ship would individually make its own purchases for the upcoming season. By 2005, they incurred its highest procurement costs. SGC wanted to combat this trend and one of the first adjustments was to move towards a centralized purchasing, where one department would be in charge of all purchases for all ships. The centralized purchasing strategy would purse reducing costs via e-auctions.

Problem
The centralized purchasing strategy proved to greatly reduce the overall order costs of the company and provided cost-saving opportunities for the company. One of these opportunities would be E-auctions, but senior management were concerned about the impact on quality and the effect it would have on their suppliers. The purchasing cycle for SGC begins with a master forecast for the upcoming season about eight to ten months prior to need. Senior purchasing manager, Kasey Davis gave Brandt, the list of all the products needing to be purchased for next year—from replacement engine parts to chocolate mints placed on pillows. An overwhelmed Brandt now has to determine which of these products and services would be best purchased through e-auctions, steps to conduct a successful e-auction and the e-auction affect on their current suppliers.
Recommendations
To begin the EDP process Brandt should first select the type of e-auction he would want to run, whether an open auction, sealed bid auction or reverse auction. Open auctions allow suppliers to select the items they want to place offers on, see the most competitive offers from other suppliers, and enter as many offers as they want. A sealed bid auction allows sellers a certain time to submit one best and final bid, whit bidders having no knowledge of what others are bidding. Finally, reverse auctions involve one buyer and many sellers. Sellers place decreasing bids on a set of goods or services and follow a specified set of rules that govern the auction. After this selection Brandt needs to be sure the following are in place: 1. The specifications of the product and services offered should be clear and well defined, including product characteristics, quality standards, technological requirements and delivery expectations. 2. A competitive market with sufficient qualified suppliers. Three to six suppliers is sufficient to provide just enough competition and avoid confusion. 3. Clear understanding of the market standards in order to set appropriate expectations. Important to note is that the cost of e-auctions is expensive and is justified by the savings on the prices received. Those costs include software and training. 4. Clear rules for the auctions such as extending the auction and selection criteria.
Traditional purchasing is done through negotiations between a buyer and a seller, where as an e-auction is done through competitive bidding. E-auctions will have more qualified suppliers, and the products are usually standardized rather than customized for the buyer with traditional purchasing. Traditional purchasing products are more technically complex and e-auctions would have much larger volumes. The best items suited for e-auctions are commodities on the ships that have standard specifications, which are identified as functional products. Brandt’s e-auction products will include but not limited to: beverages, kitchen supplies, stationary, bed sheets, furniture, etc. These types of products have stable and numerous suppliers, which is great for e-auctions.
On the other hand, Brandt would have to inform his Senior Purchasing Manager that complex products for their ships will have to continue to be handled via traditional purchasing. These products are classified as innovative products, meaning that they are more customized and/or complex in nature. Brandt’s list of innovative products will include but not limited to: ship parts, such as engines and propellers, GPS systems, and many high-end technological products. Innovative products are very hard to predict demand and product life cycles, which is why traditional purchasing is strongly recommended. Furthermore, it is imperative that Brandt implements a thorough catalog identifying e-auction products and traditional purchasing products.
Once Brandt has identified the products that can be purchased in the e-auctions, he must be well prepared for the auction. This will ensure a smooth e-auction. The following are steps Brandt should take are (i) first identifying and prequalifying suppliers that will participate, (ii) set product requirements; i.e. quality, quantity, delivery, service and length of contract. (iii) train everyone who will be involved in the auction technology and run a pretest for functionality, (iv) specify to suppliers the auctions rules and how it will be conducted, such as closing times and extensions on closing times and (v) arrange to have technical assistance available in the event a problem arises.
E-auctions could sever good supplier relationships by sending the message that you want to switch suppliers. To ensure Brandt avoids this issue, he has to exclude suppliers that Global Cruises already has lucrative relationships. He can then inform current suppliers out of courtesy about Global Cruises implementation of e-auctions for other products the supplier may not offer. It would not be smart for Brandt and Global Cruise to rely solely on one supplier for all its products. Thus, this would allow Brandt to take advantage of the e-auction process, while still maintaining suppliers until the next purchasing cycle.