Saving Opportunity Analysis
- Online Bidding (Auction) is not a replacement for a strategic sourcing process. It is one of the most powerful and effective tools though.
- 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)
- 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
- Craft an enticing invitation message to suppliers, focused on the opportunity for them to gain business. Consider sending it to top sales management or even to CEO
Request For Quotation (RFQ)
- 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
Online Bidding Preparation
- Give suppliers adequate time to prepare for an event; first ones require more
- Avoid Mondays; Thursday pm is the 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
- And to have their decision-maker available during the auction. Most companies would rather retain business at a slightly lower margin, than lose it. If you are auctioning a large package, remind the suppliers that your business can positively change their cost structure (overhead costs spread over a larger volume).
- 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, your online auction has a greater chance of failure. Consider revising your event or question your choice of suppliers
- Starting price: Avoid both “too low” (excluding potential viable bids and market Intel) and “too high” (signaling the incumbent’s price is low)
- 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
- Feedback to non-awardees on what they can do to win
- Suppliers must ultimately get the business they earned through bringing attractive prices to the e-auction
- After each e-auction, summarize your lessons learned. Search for root causes to issues
- Don’t permit stakeholders to pose objections based on success factors or supplier criteria not initially disclosed
- Realizing the savings that were negotiated – that’s the key task