Banks was referring to the 'reverse-eBay' style auctions, in which companies bid against each other to set the lowest price for a contract and are becoming more common as buyers focus on cost cutting:
During a reverse auction, which is typically conducted online using specialized software, bidders progressively reduce their prices in response to competitors' bids. Only the buyer is able to see who is offering each price and can use the software to combine qualitative scores and pricing to measure competitiveness. Vendors often view reverse auctions as a mechanism for buyers to squeeze price concessions of them and prefer to sell through traditional channels in order to emphasize differentiating aspects of their proposition such as quality, service and performance. Yet, reverse auctions aren't always price-only and the winning bidder may not be the lowest price.
have been used successfully for many years across industry sectors, for example the public sector's use of IT eAuctions to save money on products including Desktop PCs, Laptops, Tablet PCs, PDAs and Servers etc. The public sector has been steadily moving towards eProcurement strategies and there has been a marked increase in the use of reverse auctions over the last 5 years.
The issue cited by Banks, results not from the technology itself but how it is applied. Reverse auctions work well in ultra-competitive environments and only when you are comparing goods/services on a "like for like" basis and there is a clear and unambiguous specification. They should not be used to replace the whole negotiation process. Reverse Auctions are typically used by organizations as part of a 'kit bag' of sourcing tools e.g. in the final stages of the process where all "none-price" factors and qualitative evaluation have been conducted using other techniques.
Organisations must consider the various pitfalls that can prevent a reverse auction from being successful. These include ambiguous specifications, inviting inappropriate vendors to bid, entering goods that are unsuited for auctions and paying less attention to quality when it is necessary. In addition, auctions open the local market to global suppliers and logistical issues can be problematic unless planned for.
Before charging ahead with an eAuction it is essential organizations prepare well in advance. This may also mean listening to vendor concerns and obtaining input on specifications. Communicating with the potential supply base is a key element to any sourcing initiative - ensuring the process is mutually beneficial to both customer and vendor. For example, it is crucial that the auction is run smoothly and so answering any bidder questions before the event and holding pre-auction training sessionswill be invaluable.
- Stage 1: Establish clear, achievable timescales e.g. avoid year end, holiday periods etc
- Stage 2: Define requirements and profile the category
- Stage 3: Understand the supply market and the market pressures vendors face
- Stage 4: Generate the vendor portfolio and identify participants
- Stage 5: Jointly develop evaluation criteria and specs
- Stage 6: Forecast future volume requirements
- Stage 7: Prepare and issue a well-prepared request for proposal/ tender etc.
- Stage 8: Participants complete qualitative evaluation online
- Stage 9a: Tenders assessed and a shortlistestablished
- Stage 9b: Confirm specification
- Stage 10: Results are carefully analyzed
- Stage 11: Vendors may be informed of their ranking in a qualitative evaluation
- Stage 12: Conduct pre-event training if necessary
- Stage 13: The eAuction is run
- Stage 14: Qualitative and quantitative weightings are built in to the bids
- Stage 15: The "winning" bidder is awarded the contract
, if supported by the right technical quality and functionality, offer a quick and highly efficient means of procurement. However, the normal rules of sourcing still apply - develop strategy, solicit and evaluate bids, negotiate with and select vendors, and implementation. eAuctions may not be appropriate for every sourcing event but used wisely are a vital tool in the kit bag for procurement.