e-Auctions first rose in popularity at the same time as many companies were first embracing and institutionalizing strategic sourcing. As the effort and complexity associated with these events became clear, combined with a shift towards more ‘relational’ supplier management, they faded from prominence for all but a few very mature organizations.
Today, however, the conditions are ripe for revisiting the power of e-auctions. The maturity of procurement teams and the supplier community have improved, and companies now recognize that they need a range of tools and approaches to maximize the value of each spend category. e-Auctions are an already proven answer to questions about how procurement can implement process automation at scale, and at all organizational maturity levels.
“We see that the use of e-Auctions brings high and lasting value, not only in the environment of very mature organizations, but also in the environment of SMBs,” says Martin Gracka, CEO of BestAuction. “We see it for use in several food producing companies and IT companies.”
One area where e-auctions are seeing a particular resurgence is India. Research suggests, however, that even with the rise of e-auction use, Indian companies are still not deriving the maximum value that should be associated with this approach. According to a report from A. T. Kearney, “Many Indian companies have simply used e-auctions to achieve incremental savings in a limited number of categories, without calibrating the true price point. Such a tactic merely squeezes a less-than-ideal supplier pool and defeats the overarching objective of creating a win-win collaboration with the right suppliers and obtaining sustainable outcomes.” (e-Auctions in India: A Sleeping Giant, 2014)
The fact that interest in e-auctions is increasing when economic conditions are difficult is hardly a surprise. But procurement should be on guard against the lessons of the past. If the mindsets and processes associated with e-auctions are supported, then these events are more likely to remain a prime approach for certain categories even once the economy returns to growth mode.
Myths abound about e-auctions and procurement should be prepared to discuss how impactful they are and able to discuss any potential downsides with business decision makers and sourcing project stakeholders.
Concern about incumbents/large suppliers refusing to participate in e-auctions and the digital literacy of suppliers in general is among the first cited when considering this approach. Many decision makers are more comfortable renegotiating with incumbent suppliers, but not only does that leave money on the table – it also fails to introduce innovation through qualified alternatives. Procurement must address supplier willingness to negotiate regardless of the structure or platform being used.
The planning and choreography required to successfully execute e-auctions may be daunting to newcomers, but in reality, e-auctions simply redistribute the use of procurement’s time. Rather than being hands on for weeks or months using traditional negotiation approaches, procurement can batch supplier training, build the event, and then allow the suppliers to engage directly through their platform. Exact savings percentages will vary based on market concentration and product category, but removing the variability associated with individual negotiator capabilities can more than offset perceived strategy complexity.
That perceived complexity can be a very real barrier to adoption. “Clients often ask our sales team, ‘Isn’t it a complicated process?’”, shared Tom Kovac, Sales Director at BestAuction. “We reassure them about the simplicity and transparency of e-Auctions. While procuring, they can invite their traditional suppliers or find new ones among registered users. This way they can procure items, services, or even logistics.”
Every company worldwide is concerned about doing anything to increase their supply-related risk. e-Auctions don’t require an exception in this environment. Despite misconceptions to the contrary, e-auctions do not only have to be used where decisions are purely cost driven. In addition, not all categories have to be e-auctioned for great value to be derived from a subset of categories that are. The A.T. Kearney report previously cited recommends running e-auctions for commodities, items with standard specifications, and in highly fragmented supply markets. Knowing when to use an e-auction is as important as knowing how to run one, expertise that will show through in the results.
Most supply chains are now global and companies in India are likely to have local as well as international clients. The more efficiently they negotiate their supplier contracts and the more competitive their pricing is, the better positioned they will be to grow their market share in today’s tight economic conditions – setting themselves up for success as global economies return to growth mode.