Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Finance
Reexamination Certificate
1999-05-14
2001-04-10
Millin, Vincent (Department: 2164)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Finance
C705S001100, C705S026640, C705S027200
Reexamination Certificate
active
06216114
ABSTRACT:
BACKGROUND OF THE INVENTION
The disclosed inventions relate generally to conducting electronic auctions, and in particular to business-to-business bidding auctions for industrial purchasers.
TRADITIONAL PROCUREMENT MODELS
Procurement of supplies has traditionally involved high transaction costs, especially information search costs. The introduction of electronic commerce has introduced new methods of procurement that lower some of the transaction costs associated with procurement. Online procurement, or business-to-business electronic commerce, matches buyers and suppliers so that transactions can take place electronically. There are three models for online procurement: catalog, buyer-bidding auction, and seller-bidding auction.
The “catalog” model of online procurement was the first to be developed. The first electronic catalogs were developed by suppliers to help customers obtain information about products and order supplies electronically. These first electronic catalogs were single-source; i.e. they only allowed customers to obtain information and products from that supplier.
However, customers were not satisfied with being “locked in” to one supplier—they wanted to be able to compare a number of competing products to be sure of getting the product features they wanted, at the best price. So suppliers with single-source electronic catalogs started to include competitors' products on their systems. An example of this is American's SABRE system, which includes offerings from competing suppliers (airlines), thereby further reducing information search costs. By offering competing products, the electronic catalog that offers competitor's products becomes an “electronic market”.
Many of these systems are biased towards the supplier offering the electronic market. Procurement costs can be further lowered with an unbiased electronic market that promotes competition.
For standard products and services, the need to have an unbiased market has been met for many industries by third party “market makers.” For example, Inventory Locator Services has compiled a database that lists all airplane parts suppliers that have a certain item in stock. Buyers dial into the database to get information on the parts they need. Here, it is a third party, Inventory Locator Service, not a supplier, creating the unbiased electronic market.
The electronic catalog model of electronic commerce involves one buyer and one seller at a time. When many buyers compete for the right to buy from one seller, a buyer-bidding auction model is created. A noteworthy example of the buyer-bidding auction model is that operated by PriceLine.com and described in U.S. Pat. No. ssued to Walker et al. In this system, potential buyers compete for airline tickets by submitting a bid for an airline ticket on the PriceLine website, and airlines can choose to accept a bid, thereby committing the buyer to buy the ticket. dding auction types of electronic markets do not work in some situations however. If the required product is custom, it is not possible for suppliers to publish a set price for a catalog market. Likewise, it is not possible for buyers to identify the product they want to bid on in a buyer-bidding auction. There are fewer suppliers and no standard product and pricing information available for the buyer of custom industrial products. Traditionally, when a company requires a custom industrial product, procurement is made by a buyer for the company who searches for a supplier and acquires price quotes from a potential supplier for the needed custom product. The search is slow and somewhat random because it usually relies heavily on personal relationships. The costs associated with locating vendors, comparing their products, negotiating, and paperwork are a big factor in the make-or-buy decision. The cost of switching suppliers is very large, which means that the quoted price is probably not the lowest fair price and that it is hard for a new supplier to enter the market.
Therefore, buyers wanted to use auctions to save money. The assignee of the present application developed a system wherein sellers downwardly bid against one another to achieve the lowest market price in a supplier-bidding auction.
SUPPLIER-BIDDING AUCTION
In a supplier-bidding auction, bid prices start high and move downward in reverse-auction format as bidders interact to establish a closing price. The auction marketplace is one-sided, i.e. one buyer and many potential suppliers. Typically, the rchased are components or materials. “Components” typically mean fabricated tangible pieces or parts that become part of assemblies of durable products. Example components include gears, bearings, appliance shelves or door handles. “Materials” typically mean bulk quantities of raw materials that are further transformed into product. Example materials include corn syrup or sheet steel.
Industrial buyers do not typically purchase one component at a time. Rather, they purchase whole families of similar components. At times, components are strongly related to one another. As an example, a buyer might purchase a given plastic knob in two different colors, or might purchase a nameplate in four different languages. These parts are so similar that by definition they must be purchased from the same supplier—all of the knobs are made using the same mold. These items are therefore grouped into a single lot. Bidders in industrial auctions must provide unit price quotes for all line items in a lot.
Auction Process
The process for a supplier-bidding auction as conducted by the assignee of the present application is described below with reference to
FIGS. 1 and 2
.
FIG. 1
illustrates the functional elements and entities in an supplier-bidding auction, while
FIG. 2
is a process diagram that identifies the tasks performed by each of the involved entities.
The supplier-bidding auction model requires that the bidding product or service be defined by the buyer (identified as Buyer
10
in FIG.
1
). An auction coordinator works with buyers to prepare for and conduct an auction and to define the potentially new supply relationships resulting from the auction.
As shown in
FIG. 2
, in the Initial Contact phase
102
of the auction process, the coordinator contacts the buyer, and the buyer provides data to the coordinator. The coordinator prepares a specification
50
for each desired product or part
52
. Once the product
52
is defined, potential suppliers for the product are identified. The coordinator
20
and buyer
10
work together to compile this list of potential suppliers from suppliers already known to the buyer as well as suppliers recommended by the coordinator.
The buyer makes a decision regarding which potential suppliers will receive invitations to the upcoming Auction. Suppliers that accept Auction invitations are then sent notices regarding the upcoming Auction, as well as client software to install in preparation of participating the Auction.
In the RFQ phase
104
, coordinator
20
works with the buyer
10
to prepare a Request for Quotation (“RFQ”)
54
. The coordinator collects and maintains the RFQ data provided by buyer
10
, and then publishes the RFQ, and manages the published RFQ. The RFQ includes specifications
50
for all of the parts
52
covered by the RFQ. In the RFQ
54
, buyer
10
aggregates similar part or commodity line items into job “lots.” These lots allow suppliers
30
to bid on that portion of the business for which they are best suited.
During the auction
56
, bids
58
will be taken against individual lots (and their thin RFQ
54
. While bidders must submit actual unit prices for all line items, the competition in an Auction is based on the aggregate value bid for lots. The aggregate value bid for a lot depends upon the level and mix of line item bids and the quantity for each line item. Therefore, bidders submit bids at the line item level, but compete on the lot level.
In the Auction Administration phase
106
, coordinator
20
coordinates the Auction and administers the Auction setup and preparation. The coordin
Alaia Marc
Becker David J.
Bernard Anthony F.
Heckmann Daniel C.
Kinney, Jr. Sam E.
FreeMarkets, Inc.
Millin Vincent
Morgan & Lewis & Bockius, LLP
Patel Jagdish N
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