The National Electric Power Commodity Trading Division appears to be successful through the use of competitive bidding process. However, the company considers reverse auction sourcing as the most appropriate approach they intend to implement in the future that would be effective for the purchases of coal requirement for the company. NEP’s preferred supplier selection approach is competitive bidding. In essence, NEP considers examining at least 3 bids then grant contracts based on, service, delivery, value, quality, schedule and other critical conditions that meet the organization’s needs. The advantage is that NEP retains the policy that grants no preference on the basis of union, non-union or location status. NEP, however, faces some restrictions. NEP is limited to grant contracts to the disadvantaged and minority bidders. NEP as a coal trader must meet the subsequent quality standards; 20% moisture content, 6-8% ash, have low sulfur content and produce coal with high caloric value. NEP continues to solicit bids when the bidders do not meet these standards. The disadvantage is that NEP lacks quantitative methods of prequalifying suppliers. Another disadvantage is the fact that NEP depends heavily on prior dealings with organizations so as to decide on purchases.
NEP being a government contractor, it gives them a disadvantage since they are required to grant contracts to the disadvantage or minority bidders. Nonetheless, to ensure diversity of suppliers, NEP has come up with measures such as the Supplier Diversity Program. Essentially, the main focus of the contracts granted to suppliers is to emphasize the minimum quality standards so as to project financial activity.
I would recommend that for NEP to implement effectively the reverse auction sourcing. NEP will, therefore, benefit since prices of coal will reduce hence minimizing the electricity production cost drastically. Ultimately, the overall cost of production will decrease leading to increased profits. The company should increase the market efficiency and as well ensure to check the quality of coal upon being supplied. To achieve all these it would be significant for the company to offer refresher training for the sourcing personnel on how to conduct the reverse auction sourcing. This will help to achieve the company’s strategic goals.