Do we understand eAuctions?

Even today there are many companies that do not fully understand what eAuctions are about also the benefits they can deliver. There is also still supplier’s unwillingness to participate which poses a problem for many buying organizations. The power of eAuctions for buying organizations is compelling: 12% average savings; up to 50% cycle time reduction; visibility & standardization of the procurement process with access to a global supply base. Due to this power, eAuctions will not go away.

Predominately all buying organizations look to obtain the best value for the goods and services they purchase, but for many suppliers they still fear the eAuction as they believe it’s a way to eat into their profits, possibly destroying long term relationships and potentially losing the business to a new offshore company or even destroying an industry completely. Without a shadow of doubt the eAuction has shifted the balance of power in the negotiation process towards the buyer. In fact with through preparation, clear guidelines, proper education and understanding of the eAuction process it can be a win win situation for buyer and seller alike. Auctions have been around for a very long time, the first people to use the auction process were the Romans when they where purchasing slaves, assembling willing parties together in a dynamic market and you will obtain the best deal the market can stand. The eAuction has become an efficient and effective tool to market goods and services, facilitating access to new global markets and industries and providing direct feedback on the competitiveness of a supplier’s product base.

So what’s the difference between a traditional auction and the eAuction? The major difference is that the company in first place does not always get the business; in an antique auction the highest bidder will take the antique whilst in an eAuction the lowest bidder will not always win the business. Why is this? In an eAuction there are non pricing factors to be considered such as quality, reputation, standards and delivery schedules. Many buying organizations use the QTC (Quality, Time and Cost) triangle in their evaluation matrix. These are all important factors that go into the final award decision and it’s important that the supplier understands the evaluation matrix and in many cases work with the buyer in its build. Another important difference between traditional and eAuctions is that eAuctions are not a free-for-all. Only invited suppliers are allowed to participate. The final difference is that in a traditional auction the buyer will be only able to negotiate on a one to one basis with a limited number of suppliers, whereas in an eAuction the number is unlimited this allows suppliers from other parts of the globe to compete for the business.

It is extremely important for the supplier to develop his own strategy before entering the event, for example what is the lowest price that can be bid considering your own supply chain process, also consider any current relationship with the buyer and what effect will the non price factors have in the buyers evaluation matrix on the award decision. In the last decade eAuction solutions have become more sophisticated with input from both buyers and seller as to the way the process should be handled and what should be part of the process. This engagement process is still continuing today as the solutions evolve over time and events (Globally). It is fair to say that eAuctions are here to stay and won’t go away as they have become an integral part of the supply chain process.

An all important factor that was not considered in some of the earlier solutions and events was feedback as to why you may not have won the business this time around. There is continuing debate on this, however, if you don’t win, understand why and identify ways of doing better next time around. Look at your own strategy and your own supply chain for possible weaknesses that prevented you from winning.

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