Wood pallet suppliers' reaction to online reverse auctions

Purpose – The purpose of this paper is to quantitatively assess wood pallet suppliers' reaction to online reverse auctions and its impact on their business policies and practices. Design/methodology/approach – Survey method was used to determine how pallet suppliers react to online reverse auctions. Findings – Determines that pallet suppliers do not realize the benefits claimed by online reverse auction service providers. Identifies new sources of costs which accrue to buyers and are not accounted for in so‐called “total cost” request for quotes including: retaliatory pricing practices, less cooperative relationships, and sourcing work back to the original supplier. The qualitative benefits identified for suppliers by third‐party online reverse auction service providers are overstated or false. Research limitations/implications – The present work can be extended to other commodity categories to identify similarities and differences in how suppliers react to online reverse auctions, understand the domain of successful and unsuccessful application of the online reverse auction tool, and provide further insight into the evolution of buyer‐seller relationships, including embedded organizational routines such as power‐based bargaining. Practical implications – Findings mirror the results found in a previous study that examined aerospace parts suppliers' reaction to online reverse auctions, and indicates that market makers have consistently overstated the benefits of online reverse auctions to both sellers and buyers, and the use of this tool will typically result in unfavorable outcomes for both buyers and sellers. Originality/value – This paper will be of interest to buyers, sellers, and market makers, as it identifies important problems with online reverse auctions, and suggests questions that buyers should ask market makers to ensure better sourcing decisions.