Every major UK grocery retailer now uses online auctions to drive down procurement costs and, collectively, they have saved millions of pounds. Buyers are emphatic in their support and adamant that the practice is an invaluable trading tool - quicker and more transparent than other procurement methods.

However, there are risks involved in being over-enthusiastic, as winning suppliers may be unable to deliver on promises and buyer-supplier relationships may become depersonalised. Comprehensive pre-auction specifications are seen as the most important factor in overcoming the risks.

When online auctions first emerged as a phenomenon a few years ago, the controversial buying tool was hailed as the future of trading relationships. Retailers were reportedly champing at the bit to save time, ramp up competition and shave costs, while suppliers were outraged at what they saw as another blunt tool to hammer down their margins.

Evolution has revealed that both reactions were probably justified. The Chartered Institute of Purchasing (CIPS) estimates that billions of pounds of trading is done via e-procurement, with grocery retailers typically saving about 15 to 22%. However, in last year's OFT report, auditors PKF found suppliers complaining of contracts being terminated at short notice, following 'tender exercises', believed to be online auctions.

Buyers taking part in The Grocer's forum support e-auctions emphatically. About 40% say they are using them pretty much at the same level as two years ago, with the remainder split evenly between more and less use.

The majority are adamant that they are an invaluable trading tool - quicker and more transparent than other procurement methods. They also argue that the online bidding process can work in suppliers' favour because they can see what the competition is offering and update their own bid.

Most say that the time factor is a big advantage. “It's a way to reduce the time spent on an entire tender process,” says one. “It also allows for quick culling of the suppliers to go through to the next stage if the cost is not competitive.”

Others point to the opportunities to have contact with new, possibly overseas suppliers.

Cost saving is seen as the biggest plus though, particularly as the process is usually used for tertiary product activity or commodities. But most buyers are keen to stress that money is not the only issue, as it is not only the supplier that stands to miss out when buyers are too gung-ho in their approach to reducing costs.

One respondent cautions against being too tempted by low quotes and then left in the lurch. “The supplier may go under, need instant price increases or have poor availability,” he warns.

“It may cost them less to be hit with charges than to deliver the goods they have over-optimistically pledged to source or manufacture at a certain price.”

The CIPS, however, points out that auctions typically run after an exhaustive offline selection process, with suppliers only invited to partake if they have passed a rigorous product and service evaluation and the forum buyers reinforce this view.

“The best way to avoid this is to be specific about the product specification and give minimum requirements,” says one. “I wouldn't agree for a supplier to enter an auction unless I was happy with the product quality and the ability to supply the volumes we need to this quality consistently.”

One thing the buyers all agree on is that, overall, suppliers' concerns about e-auctions have died down, although a few admitted that some had refused to take part. One attributed the reluctance to “a widespread belief that auctions tend go to those suppliers who need to buy business for a short-term gain and who quote prices that are unsustainable long term”.

And buyers also stress that the online negotiation and focus on price have not damaged buyer-supplier relationships. “Once we've got the price out of the way, we can concentrate on contract execution,” says one buyer.