Lect 2
In week 2's lecture, Mr. Koh introduced a couple of new terms: reverse auction and Analytical Hierarchy Process (AHP). After some research, I have managed to find out what those terms mean.
Reverse auction is often used in industrial business-to-business procurement. Traditional auction works by having one seller to many buyers, driving the cost of the goods/service up as buyers compete to obtain the goods/service. Reverse auction works in the exact opposite way, by having many sellers to one buyer. This drives the cost of the goods/service down as sellers compete to offer the best price to the buyer.
However, there are issues regarding reverse auctions. While buyers may cut cost by using reverse auctions, sellers lose revenue as they are pressurized to push the selling price of their goods/service lower. Overusing of reverse auctions can erode the relationship between buyers and sellers. It also must be noted that reverse auction does not deliver cost savings in every case. Direct and indirect losses associated with using reverse actions, implementing reverse auction results, subsequent procurement activity, and related activities (such as customer returns, defective goods or services, etc) should be calculated to see whether reverse auction is cost-saving or otherwise. In conclusion, reverse auction should only be used when appropriate.
Analytical Hierarchy Process (AHP) is a method for formalizing decision making where there are a limited number of choices but each has a number of attributes and it is difficult to formalize some of those attributes. It uses the human ability to compare single properties of alternatives. It not only helps decision makers choose the best alternative, but also provides a clear rationale for the choice made.
Labels: LSCM
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11/04/2006 04:05:00 PM