As with any technology, misconceptions about auctions can limit their ROI and even prevent them from being used. By gaining a greater understanding of these two auctions myths, procurement can better evaluate them as one tool to use in negotiation:
An auction is not just a price game.
It is possible to build auctions that address both qualitative and quantitative dimensions of supplier value. If a factor will influence supplier selection, there has to be a way to capture it – strategic decisions can’t be made based on ‘gut feel,’ especially at scale.
There are a wide range of auction strategies.
Most companies have a process for determining the right strategy for each sourcing project, but very few have the same process for designing an auction strategy. Each auction has to reflect the number, type, size, etc. of suppliers that will participate. Understanding which category characteristics require which types of auction parameters is no different than pairing a supplier or category with a specific approach to negotiation.
Auctions are a diverse and valuable approach to supplier negotiation that can address far more than unit price. To learn more about effective auction strategy and frameworks, listen to Art of Procurement podcast episode 377: A Practical Guide To E-Auctions For Procurement W/ Jacob Gorm Larsen