TIMBER SUPPLY AUCTIONS – VICFORESTS
“Prior to engaging Tradeslot, we interviewed a large number of domestic and international auction system providers. We chose to partner with Tradeslot due to their commercial market development skills, their technical capability in building on-line solutions and most importantly their commitment to understanding our objectives.” – Matt Crapp, Director Sales, VicForests
Client Background
In a push to revolutionize the timber industry and create a competitive market place, VicForests ran an international selection process and identified Tradeslot as the expert consulting and technology partner to turn their ideas into reality.
The results to date: substantial increase in revenue (>40%), high levels of buyer satisfaction and a long term commitment to the partnership from both VicForests and Tradeslot.
Client Objectives
VicForests is using the Tradeslot auction platform to achieve a range of commercial and administrative objectives:
- Revenue maximisation through allocation of timber to bidders who value the timber lots (or combinations of lots) most highly
- Fairness and transparency in the sale of the State’s timber assets, managed by an independent third party without vested interest in the outcome
- Introduction of a market based sales mechanism maximising flexibility for bidders
- Development of an efficient online trading system that reduces the administrative and process overhead for bidders and for VicForests
Tradeslot’s Role
- Customised the platform to match VicForests’ requirements
- Conducted a ‘mock’ auction to allow the bidders to test their bidding strategies and auction readiness
- Tradeslot has been managing the live auctions since 2006
- Provided intelligence back to stakeholders (e.g. Department of Treasury and Finance as the single shareholder of VicForests)
Key Facts
- The first auction run for VicForests resulted in a revenue uplift of over 40%
- The auction platform is capable of assessing the optimal allocation among over three million options in real time
- The system allows for price and non-price factors (incumbency, quality etc.) translating them into “factored bids”
Business Outcome for Our Client
In contrast to traditional allocation planning mechanisms VicForests did not attempt to predict how the lots should be defined, sized or packaged – a process that invariably misses ‘private value’ on the side of the buyers.
Shaping the market is in fact done through market forces: As each mill values different combinations of lots, e.g. by geographic zone, supply period, species or grade, or by quantity of supply, they are able to create these unique packages and bid for them during the auction.
As the bids are processed, the platform determines the leading allocation option in real-time during the auction (based on a factored mill door price), and provides immediate counter-bid guidance for all participating bidders.
The auction platform has delivered revenue outcomes significantly higher than previous allocation methods. The first two auctions conducted in 2006 achieved revenue uplift of 40% and 59% respectively (weighted average).
Benefits
Revenue Maximisation
A central tenant of the auction process is the commitment to contract award at the time of the auction. Assuming the reserve price is met; contract award is automatic to the best value bidder/s. Together with expressive bidding the commitment to contract award drives competition amongst bidders and results in additional revenue uplift for the seller.
Flexibility
Bidders can design their preferred lots and even combine lots as conditional bids. This approach allows bidders to express preferences that best meet their unique business needs – thereby creating incremental value for buyers and increased revenue for the seller.
Transparency & Fairness
All qualified bidders receive real-time transparent bid feedback. Unlike sealed bid tenders, bidders can submit multiple bids, and are provided with iterative bid guidance at all times during the auction. Tradeslot as an independent third party administers the bidding rules that apply to both the seller and all qualified bidders.
Efficiency
By using an online auction to sell timber lots simultaneously VicForests was able to significantly reduce the cycle time associated with its traditional processes.
Matt Crapp, Director Sales, VicForests
“Tradeslot has been an integral and essential part of VicForests’ success.”