How to Break a Cartel in Reverse Auction Process
A combination is formed when businesses agree to act together for an anti-competitive purpose rather than contending against each other. The combination-forming companies divide the requests and guests between themselves and agree on prices. The consequences are increased prices and deteriorating quality of products and services. Several profitable studies and legal opinions of antitrust authorities have planted that the median price increase achieved by cartels in the last 200 times is around 25. Principal Procurement Officers (CPOs) are demoralized with the demanding task of relating to and breaking these cartels.
Competition laws frequently prohibit private cartels. Identifying and breaking up cartels is an important part of the competition policy in utmost countries. As Chief procurement officers (CPOs), you're demoralized with the demanding task of relating and breaking these cartels, especially in a reverse transaction process.
Still, it's important for you to take into account the "Cost of fighting the Cartel" as in some cases, the decision to break the combination can boomerang.
• The combination may decide to increase the pricing cohesively
• The combination may decide to swap the transaction incompletely or fully, either by not quoting for some of the particulars of all of the particulars in the transaction
Breaking the combination in the Reverse Transaction process
1. Identifying the cartel
The foremost step in breaking the combination is to identify the cartel. However, distrustfully high prices or there's a huge difference in the price of the winning shot and other flings, unexpectedly analogous prices between flings, If the supplier is offering inconsistent prices.
2. Building a supplier pool
The cost of fighting cartels is further than the cost of acquiring new suppliers. You should keep on streamlining and refreshing the supplier database by constantly doing new supplier exploration. In case when the suppliers aren't available for a particular order X, you can pursue chancing suppliers for another Category Y that would serve the same purpose. Cues on new suppliers for order Y can be taken from the suppliers of order X.
3. Onboarding new suppliers
You should foster new supplier development by inviting them to the Request for Proffers (RFPs) and bidding process. There should be a mandate for the eprocurement platform team to give significance to new suppliers. CPOs should interact with them and make them feel wanted. It's fitting to resolve their queries and enterprises, train them on the company's sourcing software, and promote point visits for them. This will ascertain a stronger buyer-supplier bond with them. New suppliers should feel that they also have a chance of winning the shot.
4. Ensuring Supplier Anonymity
Using an electronic platform for performing reverse deals can ensure supplier anonymity. During an electronic transaction (e-auction), bidding suppliers can view the changing bids and their ranks; still, they don't know the names of their challengers. Non-interaction between the suppliers during and after-auction can prop in precluding combination conformation. Therefore the dynamic competition essential in reverse auction sourcing deals can affect equilibrium pricing and deliver the hard amount of savings for you.
5. Splitting contracts
Bringing down the size of business handed to the peremptory supplier by involving a new supplier. Say, if supplier X had the contract before, but it's found that they're a part of the cartel, also it's judicious to resolve the new contract between the new supplier and supplier X. You may not get immediate savings in this process but you may still be suitable to break the combination. It's probable though that the peremptory supplier may come to you with better price immolation on realizing that they're losing important business.
6. Non-collusion agreements
Suppliers should be made to sign a non-collusion agreement as part of the bid documents. Fear of getting disqualified from the bidding process may discourage the suppliers from uniting with each other and therefore you may be suitable to break the combination. You can also consider creating private impulses for the combination members to play one member against the other. And eventually, if the supplier power has increased mainly and the chances of breaking a combination are bleak, you can start looking for alternate products.
Original Source: ESourcing Services