Beyond Low Bidding

Confusion with online auctions is the primary obstacle that Mitch Free encounters when he tries to persuade machine shops to join his online service. Mr. Free is the president of Mfg.com. He says job shops and other contract manufacturers often assume that an online marketplace and an online auction are one in the same. In fact, there is more than one way to bring manufacturers and buyers together using the Web, and Mr. Free's site does not use the auction model.

Instead of relying on fees from transactions, Mfg.com makes its money through subscriptions. Shops pay Mfg.com to make information about their capabilities available to buyers, and also to gain access to the RFQs that buyers use Mfg.com to distribute. (This too should be noted: The company that owns this magazine owns an interest in the site.)

Buyers and sellers who find one another using this site are not limited to the site, and they don't have to communicate solely through the Web. The subscription model means that there is no need for the transaction to be closed electronically. With the buyer seeing the shop's identity and the shop seeing the buyer's identity, either one of them is free to make a phone call.

As a result, the number of deals initiated by Mfg.com is impossible to determine, because so many buyers and sellers continue their relationships off-line. The site does nothing more than convey information—that is, what jobs are available, and what shops might be available to do the work—without influencing the buyer's choice or brokering the deal.

Shops subscribing to Mfg.com post a detailed profile on the site. RFQs delivered online can be matched to a particular shop's equipment, expertise, capacity and/or geography, according to the shop's preference. A shop can even opt to see every single open RFQ. The site has about 700 such opportunities available on any given day.

Shops see a similar level of information about the jobs available for bid. Drawings and technical information are attached to the RFQs. Information about the buyer is also available, including the volume of RFQs the company has submitted through the site in the past, and how many of those jobs have been rewarded. In other words, the potential bidder can get a sense of just how serious the company is about rewarding a particular job.

Jobs are awarded according to more than just price, says Mr. Free. Buyers who award jobs reveal information about the bids that were submitted, and this information shows that the lowest bidders rarely win work. Price is just one bit of information that buyers use in the evaluation. According to Mr. Free, the average job is awarded to a supplier whose bid price falls just slightly below the average of the bids submitted.