Whether in the purchase of a house or a signed first-edition Ulysses, there is nothing that will stop a prospective buyer in his tracks faster than a bidding war–that is, unless you are a treasurer looking to buy a service from a bank. While there was always a modicum of healthy competition when a company put out an RFP for banking services, pioneering treasury organizations are setting off a small frenzy within the banking community by moving online to buy products and services via e-auctions. "This is a new phenomenon," observes Susan Skerritt, a partner of Treasury Strategies Inc. "Only a handful of companies have tried it so far, but if bankers are not shaking in their boots, they should be."

The reason? Unlike most auctions that tend to push prices up, an e-auction, held by a corporate treasury, forces participating banks to cut prices as they bid against each other to win a corporation's business. Obviously, banks aren't crazy about the new tactic, to put it mildly, but thus far enough are playing along to create spirited bidding. And not surprisingly, for those who've tried it, e-auctions have translated into big savings.

Take, for instance, Whirlpool Corp. For a couple of years, the procurement people at the $7 billion, Benton Harbor, Mich.-based appliance giant had been using e-auctions to buy commodities and had seen a significant decline in their operating costs. Why not use it for treasury services, thought Frank Luongo, director of treasury analysis. So last fall, the treasury department tried it with the company's T&E and purchase card business. In a matter of two hours, Whirlpool had received a flurry of 51 bids from four rivals. Although the current provider of the business, U.S. Bank, maintained its hold on T&E, it lost purchase cards to Citibank, which substantially underbid it on the three-year contract. The bottom line for Whirlpool was a savings of 300%. What makes it even sweeter for Luongo is the certainty he now has about getting the best market price possible. "With a traditional RFP, you may try to renegotiate a little bit with one or two finalists, but you never know whether you got the lowest price," says Luongo.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.