corporate purchasing e–auction best practices

Bill Kohnen Feb 2014

E –Auction Best Practices

Once the hottest thing in Purchasing the use of online auctions lost momentum however, shows signs of a comeback as the result of improved cloud based options at lower prices.


E –Auction: Initial Excitement

• Between 2000 and 2005 lots of interest in E Auctions– Success stories from big companies– Potential of Internet to drive efficiency– Hungry supply base willing to participate– Lots of companies offering solutions


E-Auction Interest Cools

• Success stories from big companies arguably came from better preparation and leverage more than E-Auction process

• Big companies success not always seen by smaller enterprises

• Fatigue from Supply Base getting margins squeezed

• Software solutions: not optimized, expensive, Enterprise versions faced corporate IT resistance and Cloud based offering not well accepted


E Auction Renewed Interest

• New Cloud based tools available• Widespread acceptance of e-commerce

transactions• Suppliers more confidant in participation• Global Suppliers absolutely comfortable with

process• Mid Level Purchasing professionals “grew up”

in a web based world … more natural for them


Best Practice Areas

• Policy• Strategic Sourcing / Opportunity Analysis• Supplier Analysis• RFx Development• Preparation for Online Bidding• Auction Event• After Event


Policy

• Create policy that defines categories where if two or more suppliers are qualified – item is eAuctionable.

• Require top Sourcing Manager/VP approval not to E-Auction a commodity - Change buyer mindset to “Everything is eAuctionable”

• Require each sole source to be aggressively approached. Disaggregate requirements as possible and/or get sole source supplier to agree to auction for subsystems.

• Require all categories to be evaluated for potential E-Auction benefit using structured criteria; prioritize and select auction approach, based on outcome

• Put in place and monitor on a regular basis metrics regarding E-Auction process relative to overall spend.


Strategic Sourcing Saving Opportunity Analysis

• Online Bidding (Auction) is not a replacement for a strategic sourcing process - sourcing strategy becomes more important– Is now the time to hit the market? Is it a buyer’s or seller’s market? What is driving the

suppliers?• Challenge your “strategic supplier” relationships

– Are you really benefiting? Are they competitive? To what part of your business strategy do they contribute? How?

• Use of a reverse auction is not necessarily an alternative to catalog buying or strategic relationships; it may be a precursor.

• Online auction may be a transitioning device for a relationship commodity– From one relationship (from which you may not be benefiting) to one with greater benefit for

you.• Use online auction to test the competitiveness of long-term supplier

– Make sure that there is competition and excess capacity in the market

• Establish criteria and authority to decide, together with your commodity team. Get that buy-in before the auction.


Supplier Analysis

• Start immediately gathering information on potential suppliers, & on their qualification

• Scrub supplier list ahead of the auction• Think how online auction will integrate with

requisition process• Determine level of supplier qualification & make sure

all suppliers meet that requirement prior to auction• Develop invitation message to suppliers, focused on

the opportunity for them to gain business. Consider sending it to top sales management or even to CEO


RFx Development

• Group parts, but only similar ones; not too few, not too many• Think like a supplier – what would make the package more attractive to them, without

increasing your cost or the difficulty to run the event?• Make sure all invited suppliers can provide all parts in a lot bid• Remember: order frequency, quantity and value are drivers• Make sure to set “Reserve” price at a level above which you will not place the business• Set the “Target” price at a level below the “Reserve”, and at a level you really would like

to obtain• Tell suppliers what type of pricing they are to submit: individual item prices or lot prices• Load data well in advance; account for time necessary to revise documents if necessary• Establish clear, written rules – Bind suppliers to them• Plan ahead - your auction package may need review by Legal, Environmental, Logistics• Some suggest Ideal e-Auction size:

– US$100k and US$10 million– 2-4 line items Maximum 8 line items


Online Bidding Preparation• Verify Internet connectivity for all users (Buyers, Admin., Suppliers)• Have suppliers who need connectivity to begin work now, and report progress

weekly• Give suppliers adequate time to prepare for an event; first ones require more• Avoid Mondays - Some suggest Thursday pm is best• Post all information 4-5 days ahead, so suppliers can gain connectivity and review

data• Suppliers must see your approach, event and actions as consistent, open and fair• Post FAQs to address usual questions• Tell suppliers to know their costs ahead of time – total cost and incremental costs• Suppliers should have their decision-maker available during the auction. Most

companies would rather retain business at a slightly lower margin, than lose it. • Make sure new suppliers have gone through training; hold practice session for new

suppliers, or do an RFI• Have suppliers use same computer/browser in training & mock auction as for when a

real auction• If less than 50% of your invited suppliers accept your invitation, consider revising

your event or question your choice of suppliers


Online Bidding

• Starting price: – Avoid extreme pricing low or high. – Market Intelligence is important for this

• Choose decrement to allow significant price savings without slowing auction too much

• Schedule the offerings so that bidders are not overwhelmed or confused• Be available to answer supplier questions

• Ensure I.T. is available if technical problems occur

• Consider time zones when setting auction time


After the Auction

• Provide fair and reasonable feedback to unsuccessful bidders.

• After each e-auction, summarize your lessons learned. Search for root causes to issues

• Strictly enforce and monitior success based on decision criteria initially established.

• Ensure and monitor that actual savings are captured.


Summary

• E Auctions are an important tool for Corporate Purchasing Departments

• While seeing a comeback the goal is not just to conduct E –Auctions as an end goal itself

• Important step is to review value of E-Auctions based on your Spend Profile

• Strategic Sourcing remains important• Some categories lend themselves to hybrid solution: such

as travel and office based items which can be managed with an integrated cloud based solution that may also incorporate expense reporting.

corporate purchasing e–auction best practices

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