Royal Mail slashes costs with auctions

Organistion plans to spend up to £100m through e-auctions this year

Emma Nash, Computing 09 Jul 2003

Royal Mail has started using electronic auctions to cut costs and improve value.

The organisation wants to process half of its annual £1.5bn procurement spend through online auctions, but has initially set more modest targets of between £30m and £100m this year as it starts to use the technology.

Royal Mail has signed a deal with Freemarkets to provide hosted auction software and a framework agreement for managed auction services, following trials that started last year (Computing 3 October).

'One of the things we've learnt from this is that some things are suitable for electronic auctions and some aren't,' said Royal Mail e-auction manager Joel Hunt. 'But in the mid-term it will be more modest.'

Online auctions will not be used to buy everything at the Royal Mail because the company doesn't believe they are appropriate for all purchases. It has started with logistics management services, such as air travel and package transportation.

But Royal Mail believes the technology will save it millions in procurement costs - Hunt says the trials generated 'double digit' savings.

'We think we are delivering some real benefits for the business,' he said. 'We expect significant percentage savings, but it depends on the market.'

Savings of 10 per cent - a figure Royal Mail described as conservative when it spoke to Computing last year - would cut costs by £75m.

The company says the introduction of online auctions will also simplify its tendering process, so business partners will find Royal Mail easier to do business with.

'We are only just starting to operate electronic tendering processes and we want to significantly reduce tender times, particularly when there's large numbers of suppliers,' said Hunt.

'We are in the process of embedding auctions into the procurement process. In five years time I don't want this to be seen as special.'

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