From FOMO to Fearless: How to Use e-Auctions to Drive Cost Savings
Blogs, Best Practice What is eSourcing?
eSourcing software is a secure, centralised online environment that helps procurement departments streamline and expand their buying process. It facilitates faster, better, and more diverse tender opportunities, ultimately helping organisations to generate savings in time and costs and mitigate supply chain risks.
What’s in this article?
Are you missing out by not using e-auctions? This article explores the benefits of e-auctions, addresses common objections, and underscores how this approach can foster supplier relationships, even in the face of evolving market dynamics. From debunking myths about affordability to offering insights for newcomers or embracing unconventional categories, your journey to harnessing e-auctions for cost savings begins here.
This article is part of our latest e-sourcing content which includes Six Important Reasons to Move From Spreadsheets to Sourcing Software and Procurement’s Enduring Love Affair With Email – Is It Time To End The Relationship?
From FOMO to Fearless: How to Use e-Auctions to Drive Cost Savings
In the tough world of procurement, the fear of using specialised sourcing tools for running e-auctions can hold back some organisations.
This article addresses the apprehensions many procurement professionals feel when considering e-auctions for the first time to help you effortlessly transition from uncertainty to confidence.
E-AUCTIONS ARE BACK IN FASHION – A BRIEF HISTORY LESSON
E-Auctions are back in fashion.
Or maybe it’s more accurate to say that they’re becoming harder to ignore as a proven way to ensure you’re getting true market prices from your suppliers in the current challenging climate. In our New Rules of Procurement Engagement Webinar, Market Dojo’s COO Nick Drewe discusses how a major retailer ran only a few dozen e-auctions throughout 2020/21, whereas in 2023 alone they’ve seen a 4x increase with demand from all across the business.
Online e-sourcing reverse auctions were pioneered by FreeMarkets in 1995 and the company grew fast, aided greatly by the hype of the dot-com boom era. As a result, e-auctions transformed the procurement world and the era of the ‘Auction Economy’ had begun.
The essence of the reverse auction vision was to “make suppliers compete for manufacturers’ orders in live, open, electronic auctions. No more golf-course schmoozing, no more haggling, no more sealed bids.” CNN Money, March 2000
But as the online e-sourcing market matured, the inevitable mergers and acquisitions took place as the main players sought to monopolise the marketplace.
For big, shrewd buyers (General Motors, Raytheon, Quaker Oats) with access to FreeMarket’s e-auction software, the lure for saving on average 15% on their existing rock bottom prices was undeniable.
Fast forward nearly 30 years and things are very different, yet strangely the same.
The interim years have been challenging following the dot-com boom reaching its peak (and subsequent bust) in early 2000s, the resulting recession, then the house price bubble and the financial crisis in 2010.
However, according to The Hackett Group, “Inflation has not been this high in the United Kingdom for over 30 years – long enough that the collective corporate memory of how to operate in inflationary times is almost gone. During that time, most procurement professionals would likely have simply ignored the 1%-2% average cost increases each year.”
So, with another recession looming and the ongoing squeeze of high inflation and geo-political instability resulting in supply chain shortages, cost savings are causing sleepless nights for many CFO and CPOs.
Ardent Partners’ State of Procurement report for 2023 concluded that “inflation and the pressure that many businesses feel to defend their profit margins have made identifying cost savings the top priority for 46% of CPOs”. Download a copy of the full CPO Rising report (requires registration)
Add ESG targets (environmental, social, and corporate governance) and the EU’s new regulations around supply chain due diligence, and you have more than enough reasons to think outside the box in terms of your current sourcing strategy.
Note: Ready to boost your savings with e-auctions? Sign up and try Sourcing Dojo for free with our unique ‘sandpit feature’ which offers the full eSourcing experience.
High inflation and threat of recession means e-auctions are back on the table
HOW TO USE E-AUCTIONS TO DRIVE COST SAVINGS
Research by The Hackett Group found that Digital World Class® procurement organisations have a 7x higher usage of e-auctions.
While it’s true that e-auctions are not the only weapon in the procurement elite’s arsenal, the potential of e-auctions to win savings of 15% to 20% compared with traditional bidding methods, surely count for something.
In an interview with Jacob Gorm Larsen, author of ‘A Practical Guide to E-Auctions for Procurement’, he explains the situation,
“Over the last couple of years, it’s not really been a suitable market for e-auctions and very few people have been talking about it. But now, with the need to claw back some of these inflationary increases in cost and with the recession moving in, everyone is focusing on cost and there is simply no easier, better, more efficient way to claw back cost savings and find the right market level, than pushing e-Auctions.”
Listen to more from Jacob as part of our New Rules of Procurement Engagement.
Why are e-auctions so potent for getting cost savings?
In short, for all the reasons that Glen Meakem, founder of FreeMarkets, advocated. They remove golf-course deals, sealed bids and incumbent suppliers to create an open, fair, transparent bidding environment that benefits both buyers and suppliers.
We have written many articles about e-auctions so, if you want to learn more, see the ‘extra reading’ list at the end of this blog.
For the purposes of this article, we will address the common objections against using e-auctions.
“WE CAN’T AFFORD THE LIKES OF SAP, COUPA OR JAGGAER”
If you have ever tried to get a price out of SAP, Coupa and Jaggaer, you’ll soon realise that it’s not an easy feat.
This was the experience of Chris Gormley at Subpop Health, “The thing that struck me is that some of the bigger organisations are a pain in the neck to deal with,” explains Chris. “I had to answer numerous questions and attend multiple meetings just to get some information. I thought; I don’t have time for this.”
But then, Chris found Market Dojo.
“From what I saw, it’s rare to get something that was (licensed) per event. Other companies wanted to sell me on doing 15 events, over 15 months, for $15k,” says Chris.
Market Dojo lists prices on its website and is the only provider of e-auctions that offers a completely on-demand service so, for users looking to try e-auctions for the first time, you can pay on a per auction basis (and we’re confident that you will see such a good ROI after just one event that you’ll want to do more).
To hear more about Chris’ experience with Market Dojo, read the full customer story here.
Interesting fact: Chris was previously VP Product Management at FreeMarkets so he knows a thing or two about e-auctions!
“WE’RE E-AUCTION NEWBIES & DON’T KNOW HOW TO GET STARTED”
If you’re sending out tenders to potential suppliers via emails and spreadsheets, we’d argue that it’s just as easy to set up an e-auction… and you’ll get a better result.
Provided you have fully scoped and prepared your requirements, and have a list of suppliers to invite to the e-auction, you could be up and running with an e-auction in less than 24 hours. In fact, we have many customers who have done just this thing.
For more complex bids, with multiple lots, it may take a little longer but once you have set up the first auction, you have a repeatable process that will dramatically reduce time with running future events.
To help you decide on the best e-auction for your needs, have a look at our Which Reverse Auction Should I Use? infographic.
If you’re nervous about going it alone then Market Dojo has an award-winning customer success team that will help you with every step of how to set up and run a live e-auction. Book a demo with our team today.
e-Auctions are the simplest, most efficient way to get cost savings
“IT WILL DAMAGE MY RELATIONSHIPS WITH EXISTING SUPPLIERS”
For those who have been in procurement for a while, and therefore used to negotiating deals, this is a common objection.
We get it. Good relationships can take years to establish and e-auctions can be seen as aggressive and signal a lack of trust.
But times have changed. An inflationary market requires different tactics. Can you be 100% certain you’re getting the best market price from your existing suppliers? Are your suppliers putting up their prices without just cause? Could you be getting better prices or contract terms elsewhere? Can you spread the risk by using more suppliers?
To help your existing suppliers over any potential fears of participating in an e-auction, communication is invaluable. Be open about why you are using this tactic and explain the benefits.
It goes back to the original vision of e-auctions being more fair and transparent than traditional, ‘old school’ negotiations.
Alternative methods of sourcing such as emails and spreadsheets do not allow for total transparency, whereas running an e-auction allows all suppliers to feel as though they are being treated fairly and the same.
Generally, we find that once suppliers have taken part in an e-auction they realise that they are in favour of them just as much as the buyer.
For those of you that are still on the fence, then let’s look at this another way.
By what other means can you negotiate with such a large and diverse number of suppliers in such an efficient and effective manner? And supplier diversity is increasingly important to spread potential risks in the supply chain and satisfy other compliance requirements.
E-Auctions can be a way of not just uncovering the savings you could be making, but the cost of your current relationship. If you were able to cut costs by 16-20% and spread supply risk would this be worth the current relationship? In some instances this might not be the case, however it is always worth considering that a better deal could be out there.
“MY CATEGORIES DON’T WORK WITH E-AUCTIONS”
Respectfully, we disagree.
There is a lot of debate among sourcing sceptics about which categories can and cannot be taken to an e-auction.
At Market Dojo, we are firm believers that any company, large and small, can find significant savings in just about any category of product or service by using e-auctions. In fact, we wrote an article on this very topic.
Over the years, we have seen thousands of things run through our Market Dojo tool. From common tenders on items such as office supplies and raw materials, to more unlikely categories such as hiring a new marketing agency and the supply of casual lifeguards for a hotel chain in UAE!
The general rule of thumb is that if you can tender and negotiate it in a traditional sense, then you can e-auction it too.
ARE YOU READY TO GIVE E-AUCTIONS A GO?
With everything that procurement is facing, there really is no better time to embrace e-auctions as a strategic tool for driving substantial cost savings.
Sourcing Dojo is an on-demand strategic sourcing and e-auction software solution designed to rapidly evolve procurement from a reactive back office function to a proactive strategic resource.
To see Sourcing Dojo in action either book a demo with our team today or sign up for a free plan to try out our unique sandpit feature which offers the full e-sourcing experience, from building events as a host, to experiencing them as a supplier.
Want to chat about this article? Share your thoughts with us on LinkedIn (and why not follow Market Dojo too?!)
EXTRA READING
To learn more about e-auctions, here is some bonus material that you might find interesting.
September 7, 2023