Purchasing controls equipment on the Internet

Going once, going twice. Sold! Learn how process automation professionals are saving thousands of dollars buying or selling industrial controls equipment through online auctions on the Internet.

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Buying on the InternetBy Steve Dragovich, Senior Electrical Project Engineer, Innophos

BUYERS’ insatiable appetite for bargains and convenience has fueled the growth of Internet shopping, leading to online shopping experiences that rival traditional retail venues. Online auctions have sprouted among this Internet shopping frenzy to connect buyers and sellers worldwide with products sold to the highest bidder. 

Now, more individuals and companies are turning to online auctions to buy or sell industrial controls equipment. Why? For the same reasons people shop for traditional consumer goods.

At one of several major websites, a few dollars allows sellers to place a listing with exposure to viewers that literally spans the globe? Now, consider the alternative costs of placing a classified advertisement in all of the world’s major newspapers. The result of online listings is that sellers can quickly relieve inventory by unloading equipment that would otherwise be difficult to sell. Even more importantly, buyers can reap substantial discounts of 90% or more off list prices for new equipment. 

In times of reduced capital spending and cost reductions, companies are looking to maximize scarce capital dollars. “Companies need to be innovative and aggressively look for cost-effective solutions to sourcing materials,” says Peter Moretti, industrial supplies purchasing manager at our company, Innophos Inc., a specialty phosphates producer in Cranbury, N.J. “In today’s competitive market, companies are becoming more flexible in sourcing options to take advantage of benefits that electronic marketplaces allow, while maintaining quality controls.”

Purchasing new or used equipment from one of the many surplus companies is nothing new. These firms often advertise in the classified sections of magazines, or attract potential buyers through search engines on the Internet. They maintain large inventories, often guarantee the items they sell, and provide a respectable cost savings.

Online Auction Model
Online auctions, however, are a little less structured than the surplus markets. Typical sellers include individuals or companies, either inside or outside the controls industry, which acquire equipment from many sources. These may include inventory reductions, project surpluses, cancelled or abandoned installations, or bankruptcy sales. Many sellers simply have no familiarity with their products or their potential value. These items often are listed with a low starting price and no reserve. Then, they’re sold to the highest bidder at a price based solely on supply and demand. 

Listings for nearly any controls, instrumentation, or test equipment imaginable can appear at anytime during the listing period, which is usually a week or less. Next, it’s up to prospective buyers to find these online listings using keywords that match the item’s description. Depending on the popularity or the need for an item during its listing period, there may be little or no interest, which ultimately affects its selling price. Industrial controls items often are sold at a fraction of list price because they aren’t typical consumer goods that would attract scores of bidders. Also, many companies that might actually need these items still haven’t adopted a procurement policy for using online auctions. This usually leaves a relatively small number of bidders to compete for an item at any given time. Figure 1 below shows a sampling of some potential savings.

FIGURE 1: SAMPLE OF SAVINGS

Description

Retail Price

Auction Price

Savings

Discount

PLC processor

$8,500

$1,000

$7,500

88%

PLC T/C input end

$3,200

$500

$2,700

84%

Pressure transmitter

$1,200

$300

$900

75%

Color operator interface

$2,200

$700

$1,500

68%

These prices are just a sample of actual purchase prices including shipping costs for recent equipment transactions at a popular online auction. All of the equipment above was purchase "brand new."


One of the major online auction companies, eBay, is no longer known strictly for its consumer goods. In fact, a search of the website’s “Industrial Automation and Control” category at any given time reveals nearly 10,000 listings from manufacturers such as Allen Bradley, Siemens, Rosemount, Fluke, and many others. Items can be located using a simple keyword search. While eBay presently dominates online auctions, other companies such as Overstock, Bidville, ePier, and iOffer maintain websites with business and commercial/industrial categories where items can be searched and bought in a similar manner.

Interactive Auctions
A completely different approach to online auctions can be found at websites that specialize in “interactive” auctions. For example, Bidspotter.com advertises auctions worldwide that accept Internet bidding. Many of these auctions come from closing industrial facilities. 

A convenient search engine allows users to locate items in upcoming auctions. When they find a prospective item, users can register for the auction, and listen in live via the Internet. When the lot they’re interested in comes up on the auction block, attendees can enter bids, and compete with those physically present at the auction and with other Internet bidders. 

When automation and controls-related become available for auction, they’re often grouped into larger lots. This can make it more difficult to buy an individual item, or get an accurate representation of what’s included in the lot. However, auction companies usually have on-location representatives, who can track down answers, or provide additional information to would-be bidders and buyers. 

Because Internet buyers are taking part in an actual live auction, selling prices are subject to the normal 10-15% buyer’s premium. Still, this online auction alternative can offer even greater discounts when buyers find a particular lot that closely matches their interest.

Getting Started
The normal purchasing techniques involving requisitions, purchase orders, and invoices aren’t usually part of the transaction process when making online purchases. Instead, an entirely new purchasing technique needs to be accepted that involves bidding against other prospective buyers, varying prices, working with unknown sellers, and consequently more risk. 

The main obstacle involves establishing a payment method required by the sellers. While most sellers accept money orders and cashier’s checks, buyers and sellers usually prefer a faster approach to closing the deal. Since many sellers can’t take credit cards directly, nor would buyers want to risk handing out their personal credit card information, several third-party payment options exist that offer advantages to both sides. Paypal offers one such service, where registered users can set up an account using a credit card or bank account. Then, when an item is purchased where Paypal is accepted, the buyer simply authorizes payment to the seller from the balance in their account, or by directing funds from a checking account or credit card. The seller then receives money almost instantly into their account without getting any of the buyer’s personal information. While this convenience costs about 3% of the purchase price, which gets paid by the seller, it offers protection for buyers and sellers if the transaction has problems.

Recommended Practices
Following a few simple guidelines will improve your success in using online auctions. First, start planning early. Even some of the most popular equipment isn’t available all the time. When seeking equipment to support a new project, develop a bill of materials early, so you’ll have a better chance of finding listings than you will if you wait until the last minute. 

Second, buy brand-new equipment when it’s intended for a critical installation. Used items usually offer even greater savings, but this equipment’s condition is more subject to interpretation in the seller’s description. There’s much less chance of disappointment when you receive an item if it was listed as brand-new, especially if these items are still factory sealed. Used equipment should be considered for installations where failure doesn’t have important implications. 

Third, look at the seller’s feedback quantity and rating, if possible. The credibility of a seller can easily be judged by viewing this information.

Finally, allow ample shipping time before the equipment is actually needed. Satisfying the seller with a prompt payment does not guarantee immediate shipment. 

Words of Caution
While most sellers honestly represent their items in their listings, some items may be a little different than expected when they arrive. Before an item is purchased, buyers should ask questions when a listing is unclear. An item advertised as “factory sealed” could have been on a shelf for 10 years or more. Items that are brand-new may come in a box with markings, stains, or not in their original boxes. Most items listed in online auctions aren’t fresh out of the factory, so buyers should lower their expectations of the carton’s appearance as long as the item itself isn’t negatively affected.

Warranties are another consideration. Depending on the seller, online purchases may come with a guarantee that the item will work on arrival. However, after a few days’ testing period, there is usually no warranty. Some sellers don’t even offer a guarantee that the item will work. Therefore, it’s important that the length of warranty be factored into the bid price for an item. 

Moving Forward
With what started as a hobby a few years ago, online auctions have evolved into a sprawling industry. The lure of a bargain that has always attracted individuals to online auctions is increasingly tempting companies to take part in the savings. Online auctions will never substitute for the technical and application experience available at your local distributor, but simply offers an alternative when accompanying risks can be tolerated.

Traditional procurement and buying methods will always exist for companies with unlimited budgets, no risk tolerance, and mandated peace of mind by buying only through conventional channels. However, for the rest, who want to save money and maybe even have fun doing it, check out these online purchasing alternatives.  


  About the Author
Steve Dragovich is a senior electrical project engineer at Innophos Inc. This article expresses the author’s personal views, and don’t necessarily reflect the views of any other person or organization, including Innophos.
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