This article is to help you overcome what seems to be a very scary concept to organisations – the reverse auction. Too many procurement people, or perhaps your stakeholders, the mere mention of the word ‘reverse auction’ can install huge pangs of anxiety, or even terror. There is a misconceived notion that reverse auctions are complex beasts, that only the most experienced, battle-hardened procurement professional is capable of running.
There is a common saying that “People fear what they don’t understand” so we’re here to help you and your stakeholders overcome your fear of reverse auctions. These 5 top tips are designed to tackle any feelings of fear you have towards reverse auctions, and hopefully, teach you that they are something to embrace.
Top tip 1 – Pick your initial categories strategically and prove the value
Our study into reverse auctions showed that 90% of respondents thought stakeholder buy-in was the major barrier to running reverse auctions, (Read our barriers to reverse auctions blog here). If possible, try and choose some non-sensitive categories to run reverse auctions on, to begin with. Office Supplies is a great choice for this (apologies to those of you who are very precious over the type of pen you have). Invite stakeholders to view the auction, showcase the value you can offer and hopefully it will be a springboard for success to attack some other categories.
When it comes to choosing which category to run a reverse auction on, look for those which are easy to define, has savings potential, and high liquidity (high number of capable and interested suppliers).
Top tip 2 – Sell the benefits to all parties
This tip applies to both your stakeholders and suppliers. For suppliers, in what other scenario do they have an opportunity to receive some live feedback on their competition and where they sit in the market. Typically, the only feedback suppliers will receive is what the procurement lead offers them, and this can be hard to come by.
For stakeholders, the obvious benefits to reverse auctions would be price, but there are much more. It can offer insights into bench marking as well as true Market Price. We’ve seen some reverse auctions where 5 suppliers have been within £100 of each other for a £million contract – that is true market compression. It is also a much more efficient negotiation method where you can involve multiple participants over short timescales, and with no geographical constraints.
Top tip 3 – Seek guidance from your solutions provider
Your solutions provider should have seen a wealth of eAuctions completed across their client base, across a huge selection of categories too, and are in an ideal position to help you with construction and strategy for your eAuction. Don’t be afraid to pick their brains, they’ve probably seen your category put through a reverse auction, or something very similar. At Market Dojo, we’ve seen over 10,000 eAuctions across more than 150 categories run through our tool. We want to see our clients succeed, so we offer lite strategic advice included within our licence cost, to maximise the likelihood of success.
Top tip 4 – Communication is key – get your suppliers bought into the process
I cannot reiterate the importance of communication throughout the reverse auction process. Communication needs to be clear and consistent from start to finish and will help with any objections you have from suppliers. Explain to your suppliers why you’re looking to do a reverse auction, hold a session with all the suppliers to give them the opportunity to raise any concerns they have and take the time to give them feedback to alleviate those concerns. Inform them about the award criteria you’re going to use (see Tip 5), and ensure that your award method is consistent.
Some suppliers will have a negative perception of reverse auctions, but the way that you communicate will go along way to changing their opinion. Please do not change the award criteria at the last minute, as it will completely undermine the entire process.
Top tip 5 – You are not obligated to go with the lowest price
“We’re not an organisation which buys purely on the lowest price” – Good because you don’t have to! There is absolutely no obligation to go with the cheapest quote within the auction. More often than not, reverse auctions are run under what’s called a ‘buyer’s choice’ meaning you have free reign to award the business to whatever supplier you see fit.
Furthermore, you can actually run weighted reverse auctions, therefore combining the quality aspect to your tender with pricing in the reverse auction. This works in exactly the same way as if you were to run a weighted RFQ, but with live rankings based on a combination of price and quality scores. There is no reason to not run a reverse auction based on the objection of a price.
Don’t forget the importance of communication to your suppliers – make sure you follow through on your actions.
For more information on barriers to reverse auctions click here.
Market Dojo helps procurement professionals negotiate better with our on-demand eSourcing tools. If you’d like to find out more, get in touch or register for free and play around with our software for yourself!