Risks in eAuctions

Today I want to continue on the theme of eAuctions, this has been a topic of mine for well over a decade since I first introduced the concept into the Shell Group of Companies in Oman. Still today eAuctions are not widely understood in terms of the risks involved to both the buyer and seller, however. with careful planning and engagement between the parties and stakeholder engagement the eAuction tools and techniques can be a win win situation for both parties. As an implementer, executor, researcher, mentor on the subject of Sourcing I have highlighted what I consider to be some of the most critical issues to consider when embarking on the eAuction journey.

1. Incomplete Evaluation Criteria.

No two auctions are the same, even if they are for the same good or service. Market conditions change over time which affects the evaluation criteria; therefore it is important that you engage with potential bidders well in advance of the planned event to ensure that all the factors and weightings are complete and appropriate.

2. Understanding of the Bid Rules.

Well before the event and once the Strategy, event type and evaluation criteria have been established, each bidder invited to participate in the event should clearly understand the bidding rules. This will avoid complications either during or after the event. Many companies who engage in eAuctions now require that the invitee sign and return a bid acceptance showing that they understand the bid rules completely to the event administration coordinators.

3. Stakeholder Politics & Policies.

It is important to engage at the most senior level to ensure that stakeholder politics or policies do not disrupt the event or the use of eAuctions in general. This is not only true for the buyer side, but also for the seller side. Many CEO’s on the sell side only see half the story about the use of eAuctions and in many cases will go out of their way to get the event changed back to a more traditional process. There is a fear that they will give away their competitive advantage in an eAuction. The only way to address this is by education and engagement at the most senior levels ensuring that they understand the benefits for both Buyer and seller alike. This is also true for Government tender Boards as well.

4. Minimal Engagement.

All too often companies are in a rush to get the good or service procured to meet a customer demand and therefore forfeit investment in time to engage properly with the community. Buyers will often select a short list of people to get the job done quickly, this poses a risk to the buyers in that they are favoring a restricted group of bidders. The result of this action is that the rest of the community will disregard future request and possibly boycott the whole eAuction process in the future.

5. Education and Training.

This is an important Critical Success factor for any eAuction provider or Client who are administering auctions themselves. It is perceived that the low adoption of eAuctions across the Globe is due to not enough education and training even at the most senior levels right down to ground level of buyers and sellers alike. Solution providers do not provide enough expertise in the use of eAuctions which is based upon their lack of understanding of the business in general. Continuous training and education is missing in many of the solutions being provided today.

6. eAuction Administration.

In many instances there is a perception that the eAuction administration is collaborating with the buyer and placing bids behind the scene in order to drive the prices down. It is important the administration of the auction is seen as completely neutral and serving the best interests of the buyer and seller alike.

7. Backup Process

Where auctions are being run in remote area or in areas of low infrastructure, there is a risk of the auction failure. Adequate provisions and procedures should be employed to ensure that the auction can continue. In the bid rules backup procedures and processes should be spelt out and agreed.

8. Bidding Strategy (Supplier).

The supplier (bidder) should have his own strategy when going into the event. He should understand his own supply chain and the costs involved in order that he will know when he has placed his final bid, unable to go lower. This will ensure that a fair market price is obtained for the good and service rather than just the lowest price. Without this strategy there is a risk that the supplier will not actually be able to execute the good or service without claiming additional funds after the award.

9. Event Feedback.

Once the event has been concluded and a subsequent award to the winning bidder, feedback should be given to all that participated (winners and losers). This will show that the event was fair and open and the losers will see what they have to do in subsequent events. This is a critical success factor in maintaining supplier confidence in the process.

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