October 18, 2013
The use of reverse auction tools has been on the rise for several years, but the results have often not lived up to expectations. In fact, without careful upfront planning and engagement of both enterprise stakeholders and suppliers, reverse auctions can backfire, leading to increased costs and reductions in reliability and service quality. Rarely is the success or failure of a reverse auction determined by the technology used to manage the event. As is the case with most technology-enabled procurement initiatives, success is determined by how well you manage the people, process, and strategy components of the initiative.
Five Principles for Improving Reverse Auction Outcomes
If you are considering implementing a reverse auction or looking for ways to improve the results of your next eSourcing event, consider the following general principles as a guide when building and executing your strategy.
1. Identify Categories Suitable for eSourcing: Begin by building a list of direct and indirect categories of goods and services with:
Low or no price volatility
Little variance among supplier capabilities
Price as a primary sourcing consideration, with limited ancillary considerations
A large supply base of qualified competitors
2. Analyze Opportunities for Early Wins: Identifying the low-hanging fruit is an important consideration in staging the rollout of your eSourcing strategy. You are looking for those categories with the highest annual spend across a large base of qualified suppliers. Don’t start with commodity categories that are dominated by a few suppliers; look for categories characterized by a large supply base with top competitors willing to participate.
3. Understand the Importance of Specifiability: A common mistake that diminishes reverse auction results is the failure to define standardized requirements that are easily understood and agreed upon by both buyers and sellers for “apples to apples” comparisons.
4. Carefully Choose Initial Launch Partners: The largest category may not be the best place to start. Interview internal stakeholders, and identify those with the most clearly defined standards for a commodity category and have the most to gain from a successful eSourcing event. These partners will be motivated to provide the planning and collaboration that are essential in building your internal model for eSourcing success.
5. Engage and Educate Your Suppliers: Finally, don’t underestimate the importance and time required to educate suppliers on how your eSourcing event fits into your organization’s long-term strategic goals. Carefully explain criteria for evaluation and success, and solicit input and feedback in order to create both the perception and the reality of transparency and a level playing field.
Stay tuned for additional insights on procurement optimization. Contact us directly at email@example.com.
VP Sourcing Solutions
The Shelby Group