eAuctions at Krombacher: Caustic Soda — a strategic product In the past, Krombacher Brewery's purchasing department had made several attempts at effectively utilising online auctions. Success, however, was somewhat limited. Nevertheless, after four years of managing without e-Auctions, in 2006 Thomas Kummler, head of purchasing at Krombacher, took up the gauntlet again. The product this time was caustic soda.
 With an annual requirement of roughly 3,000 tonnes, Krombacher is one the key buyers of caustic soda in Germany. The chemical is principally used in the brewery to clean returnable bottles. Previously, volumes were spread across a small selection of qualified suppliers. On this occasion, the goals for the purchase department were clear: on the one hand side the company wanted to secure the best possible purchase price, while at the same time identifying and qualifying new suppliers. In the last few years, prices of caustic soda offered by standard suppliers have moved at the same pace. With the help of new negotiation methods, Kummler was perhaps hoping to achieve greater movement through the increased competition. The Request for Proposals Project chief buyer, Marco Doninger, had already researched 21 companies listing caustic soda in their portfolio. Initially, he decided to pre-qualify potential suppliers with the help of an online RFP. The benefits of the online RFP lay in the speedy drafting of the tender and the ease with which proposals could be evaluated. The RFP was compiled, run and evaluated within just one week and a day. For Marco Doninger, the result was a complete success: "The compilation and evaluation was simple and time-saving." Of the 12 companies that had submitted their specifications and prices, nine were selected for the second round of negotiations. The project team conducted long discussions about which negotiation strategies would bring about success. In the end, the decision was made to split requirements. The larger cut was to be negotiated in a separate online auction involving only those existing, qualified suppliers. Krombacher also used auctioning to assign the smaller portion, in which the newly researched suppliers had a chance to prove their mettle. By splitting requirements into two auctions, Doninger maintained a degree of fairness in the competition. Furthermore, he reduced the qualification expenses to the more economically interesting providers – a benefit in terms of both time and cost, and with strategic vision for future procurement processes.
The Auction
The two auctions were conducted very differently. The new providers were embroiled in a tough bidding process. Using the 'Blind Date' procedure, bidders could only see their own ranking and their own offer. This made the auction a completely veiled affair. In the first auction with the new suppliers a 9% saving on the start price was achieved. In total, 68 bids were received. Matters ran quiet differently in the auction with existing suppliers. With just 10 bids, bidding activity was far more sober. Interestingly, despite the application of the 'Blind Date' procedure, companies were less aggressive on price. For Marco Doninger, the consequences were quite clear: "As a result of the auction we were able to break up the price structure and establish a real market price." The Framework Agreement with the new suppliers will be drawn up according to the required qualification measures. While the auction with the new suppliers was characterized by brisk bidding existing suppliers were rather more reserved!
At a glance:
About Krombacher:
With a total output of 5.56 hectolitres, the Krombacher Brewery Bernhard Schadeberg GmbH & Co. KG is one of Germany's most successful and largest breweries. In addition to its core product, Krombacher Pils, brewed from pure mountain spring water, the company also produces the beer brands Krombacher Radler, Krombacher Alkoholfrei (non-alcoholic), Krombacher Extramild, CAB Cola & Beer and CAB Lemon & Beer. Krombacher's goals: - Securing the best-possible purchase price
- New supplier base
- Lower qualification costs
- Greater competition and advantageous conditions
- Objective decision-making results achieved:
- Agreed price clearly below previous purchase price
- Two additional suppliers acquired
- Old structures dismantled
- Gains in trust with the 'new' providers thanks to transparent procedures
- Cost minimization in the qualification process
- 30% savings in time in the whole procurement project
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