The Live Negotiation Part 1: Should you run an eAuction?

By Guest Editor

September 17, 2017 at 1:15 PM

Online auction.jpgIn 2017, technology is King. Whether you’re part of an in-house procurement team, or utilizing the services of a third-party procurement provider, the use of online sourcing tools has rapidly increased in an effort to streamline the strategic sourcing process. Bigger firms who maintain an in-house team have begun developing their own sourcing tools or licensing existing tools on the market, while smaller companies tend to seek out the services of third-party procurement providers who typically provide their proprietary sourcing software as part of their overall service offering.

Procurement professionals and suppliers alike tend to have mixed feelings on the use of these tools; specifically in terms of the value they provide when training and allocating resources have all been factored into the bottom line. While there are several benefits to utilizing a tool for RFPs and other static quotes, if a decision is made to forgo the technology in favor of using a more traditional approach, you can typically expect similar results. That being said, one clear benefit to utilizing a sourcing tool is for the Live Auction (eAuction) feature many tools have that cannot be manually replicated.

The thought of running a live negotiation can seem daunting initially; it requires strategic and focused interaction with each participant and simultaneous ongoing dialogue with a group of attentive stakeholders. The pressure to identify high savings on screen is certainly prevalent, as the use of a live negotiation provides the live market insight that essentially negates the need for second and third round bid collection. Basically, what you see is what you get… and sometimes what you get is far more than what you have anticipated.

The same mechanism by which a live negotiation tends to yield best and final offer (BAFO) pricing is the very thing that drives such competitive pricing in the first place: the insight into the competition. In a standard reverse auction, a bidder will typically have visibility to the best bid for each item on which they are quoting. Other times, they will be shown their ranking (usually as a quartile % to mask the actual number of participants), and in some live auctions, called Dutch or Blind auctions, the price reduces after a predetermined amount of time and the bidder must accept the price to continue.

So how do you know when to run an auction for the category you are sourcing? To ensure a successful eAuction and produce a room of happy stakeholders, your category should meet the following criteria:

  1. Competition and Market Availability – Are the items readily available within a wide network of suppliers who are willing and able to participate in an online auction? If so, this is a good start in making the decision to proceed with a live negotiation.
  2. Specifications – Obtaining crystal clear specifications for the products and services being sourced is not always a reality, unfortunately. Though in a live negotiation, the expectation is that the bidders are competing on the exact same item. To ensure an apples-to-apples bid, you’ll want to provide bidders will clearly defined specifications, either through product drawings or a scope of work.
  3. Contract Value – Suppliers tend to be wary of online auctions. One way to entice them and ensure participation is with a significant amount of spend on the line. 

If the above criteria are met, then conducting your negotiations live can be a great way to get stakeholders excited and drive true dollar savings in real-time without the need for several RFP rounds. While savings can never be guaranteed, creating a competitive environment where the supplier is able to glean real-time market insight, with the added pressure of the prospective customer watching tends to get them to sharpen their pencils in a way that a traditional RFP simply cannot do.

Next up: deciding the right strategy. In part two of this series we’ll take a look at setting up your competitive bid event for success.

About the Author

Kristina Kaku is a former Project Analyst at Source One Management Services, specializing in MRO, Transportation and Logistics, and Travel. Kaku is a trusted resource for helping companies achieve their cost reduction goals by executing customized strategic sourcing initiatives and conducting negotiations.



Tags: eAuction online sourcing tools sourcing process procurement live auction
Category: News Article

Guest Editor

user_avatar


Please add a comment

You must be logged in to leave a reply. Login »


Related Content

Lessons Learned in Supplier Relationship Management - A Consultant's Experience with Chicken and Construction

Guest Editor

Growing up, my favorite fast food restaurant was the Harold’s Chicken Shack on 87th and State right off the Dan Ryan Expressway in Chicago. It is still open today. (I highly recommend the half dark and mild sauce order). While in college, I took a r… Read More

Maintenance and OEM Strategies Surrounding Price and Reliability Costs

George E. Krauter

OEM’s publish data that directs the users of their products on how to maintain those products; however, many do not have the experience of actually maintaining the equipment they have sold. Read More

Procurement Evolution Through “Intelligent” Disruption

Guest Editor

The world today is evolving at an exponential pace that many folks find positively disorienting. We’re witnessing and experiencing the transformation of all the ways we live, work and Read More


Supplier Profiles

Staples

Staples Advantage is the one supplier that offers all the business solutions you need, all with the expertise of a specialty vendor. Read More

Digi-Key

It started in 1972 with an idea, a new concept in distribution. Today, Digi-Key Corporation is one of the fastest-growing electronic component distributors in the World. The stimulus for this growth is Digi-Key's customer-centered business philosophy… Read More

Lunney Advisory Group

Lunney Advisory Group was founded in 2007. Our firm is not your typical consulting company. Some members of our firm are highly qualified and experienced industry executives/practitioners while others are full time or adjunct university professors.… Read More


Webcasts

What CEOs Expect Of Purchasing

Guest Contributor

Procurement and supply management leaders have a seat at the table, and management’s expectations are high. But what do CEOs really want, and is purchasing delivering on these expectations? This webcast looks at how procurement and supply management … Read More

Growing Purchasing Influence On Indirect Spending

Guest Contributor

At world-class companies, purchasing’s influence touches just about every area of spending. But, how exactly do procurement teams get to the point where other departments approach them for help with sourcing such indirect categories as human resource… Read More

Procurement-Finance Collaboration

Guest Contributor

Procurement & finance are two business functions which are often at loggerheads with each other. One reason for this is the lack of perception alignment on an important metric of procurement and finance performance - 'savings'. Read More