Royal Bank uses online bids to cut supply costs

Royal Bank of Scotland is to introduce an online auction system for its suppliers in a groundbreaking bid to cut costs and streamline its supply chain.

Nick Huber

By signing a deal last week with online auction supplier FreeMarkets, the bank hopes to make cost savings of up to 15% on sourcing goods and services in its procurement process.

But analysts greeted the bank's claims with scepticism, warning that apathy among suppliers over the online systems risked making the new system more trouble than it is worth.

Ed Smith, director of group purchasing operations for Royal Bank of Scotland, said, "It's a toe in the water, but we will be putting £65m of business online this year."

He added that the FreeMarkets' auction software will allow the bank to reach a wider audience of suppliers which only need a Web browser to connect to the auction system.

Royal Bank of Scotland will use FreeMarkets' B2B Global Marketplace product for choosing suppliers for services, ranging from stationery to IT desktop services.

FreeMarkets will run the auction system from its European centres online. The auctions can be monitored remotely through a PC.

However, analysts warned that suppliers could prove reluctant to use the new online system because of the mixed fortunes of online business exchanges and portals.

"It's a step in the right direction but a lot of people are not going to bother to bid [on the online auction]," claimed Mark Simmons, a senior analyst at Bloor Research. "The acceptance of it is very difficult."

Simmons predicted that it would take three years before the bank made savings from the auction system.

"They will probably get a year or two down the line and then realise that they've spent so much on it that it should be shut down."

nick.huber@rbi.co.uk