Author: Lewis Barnard – Head of Business Development, Market Dojo | Read time: 8 minutes
Recent events have highlighted the value of eAuctions, also called reverse auctions, as a way to gain favourable terms with new and existing contracts, especially when operating in challenging market conditions.
With more and more companies turning to eAuctions, success can be mistakenly assumed to be a foregone conclusion. This is not always the case and they deliver most value when part of a wider sourcing strategy.
In the latest in our eSourcing in Action blog series, I take you through some of the common ‘concerns’ and how our customers have met them head-on by using reverse auctions to successfully deliver real business value.
There is a lot of debate among eSourcing sceptics about which categories can and cannot be taken to an eAuction. At Market Dojo, we champion the idea that if you can create a specification for it and if you have suppliers willing to engage, then an auction will work no matter the category.
Logitech’s Head of Global Indirect Procurement put this to the test with an auction for a new marketing agency. The contract was won by a new supplier demonstrating that, if suppliers are willing to engage, auctions can offer opportunities to win new business.
Interestingly, this supplier started the auction by pricing at £200k over their RFQ prices. This is a common tactic for suppliers who, through watching their position in the auction, can gain more insight into other competitors taking part.
Across the 45 minute auction (30-minute bidding time with a dynamic close period to allow suppliers to rebid if a bid is placed in the closing minutes), they steadily brought their pricing down to a position good enough to be awarded the business.
For the Logitech team, there were two key takeaways from this experience, namely
During my time at Market Dojo, I have written a number of blogs about reverse auctions, however, customers can still feel nervous about taking the plunge so we have created this simple infographic to help you identify which auction to choose.
DOWNLOAD PDF TO PRINT & SHARE THIS INFOGRAPHIC
In terms of customer successes, there is no better example than Occidental Petroleum (Oxy), the largest independent oil producer in Oman. Despite no prior experience in running reverse auctions, the procurement team at Oxy have run some of the most competitive auctions we have ever seen at Market Dojo. Read case study
My last piece of advice is related to any questions that you may have about the size of tender and whether it will benefit from a reverse auction.
Spoiler alert! It doesn’t matter.
Last year, we collaborated with an under-graduate student from UWE (University of the West of England) to analyse and correlate products and services purchased with reverse auctions conducted by procurement professionals from multiple industries in 21 different countries.
This was the first time Market Dojo had looked at such a large data set using such a rigorous methodology. The anonymised data from Sourcing Dojo covered over 50,000 lots and savings were calculated from the current value and best bid.
The first conclusion was that there is “no correlation between saving and event value”.
The reasoning for this is quite simple. As long as the suppliers participating in an event sees the potential outcome as an opportunity, you can find that any tender will be equally enticing to a supplier, whether it is large or small in value.
The study further concluded that there is “a moderate correlation between the number of bidding participants and saving”. In other words, reverse auctions with an increased number of participants are likely to generate more savings.
Finally, the analysis looked at the impact of auction length on savings. The result here was that there is a “very weak correlation between auction length and saving”. Generally, most of the bidding is at the end of an auction so the length is not very relevant even with suppliers across multiple time zones. The addition of a dynamic close period generally ensures that the original auction length will not not impact the savings.
To learn more about these findings, read the full research here
So, whether you are a seasoned pro’ or a relative newcomer at running eAuctions, there are a few pieces of key advice that remain true.
To run a Sourcing Dojo auction — sign up for a free plan to try out our unique sandpit feature which offers the full eSourcing experience, from building events as a host, to experiencing them as a supplier.