Tactics to convince your stakeholders to run eAuctions

From experience, some of us know first hand how it can be difficult to change habits. The same applies to business and introducing new ways of doing things, even if it is proven to reap many benefits. 

We discussed this very topic at our latest Procurement Question Time session – a networking session for like-minded procurement professionals to get together and chat. The example we used was: how do you convince your stakeholders to run eAuctions? 

Whilst many procurement professionals understand the benefits that can be gained from running eAuctions for certain categories, they often need to influence their stakeholders within the business. We delve into what some of the challenges are and how they can be overcome to ultimately run eAuctions to minimise costs, mitigate risk and manage data. 

The group for this session included procurement professionals that spanned consultants through to sourcing managers for water companies, retail, healthcare, utilities, and manufacturing. 

Stakeholders may be apprehensive that their incumbents won’t engage

Stakeholders have previously shared they feel their incumbent suppliers may not take part or engage fully in an auction against other suppliers. This was a common concern that had been heard a number of times within the group. 

The requirement is to put the incumbents’ and stakeholders’ minds at rest to allow them to understand how the incumbents will be treated fairly and how all offers will be considered on a like for like basis. It is good to remember that incumbents are likely to be in a strong position. For example, there are switching costs that either the other participants would have to examine and take into account, or the host will need to address separately. Despite a common view that auction awards are price driven, it is key to share with incumbents that non-price considerations can also be taken into account within the bids. 

Increased transparency within the process can be created and shared through upfront effort being placed against creating the specifications. This allows incumbents to benefit and understand how the final award will be made. 

If it is felt there is a risk with the incumbent attempting to derail the auction process, buyers need to be firm as to why the process is being examined. The risk can be mitigated through fully understanding the category, and obtaining all the intricacies on the goods or services received from the incumbent to allow a like for like sourcing process. A multi-stage process, which could start with an RFI or pre-analysis of the market can allow a better understanding of how to structure the event to gain the maximum benefit.  

When the auction is the final negotiation step within the sourcing process, the risk of the incumbent not engaging, and of other participants not engaging because they feel it is too price focused, can be further mitigated through running the auction on a buyer’s choice basis. As an example clause in the documentation: “The Lead participant will be considered in the most favourable position for the tender, however <<Company X>> is not obliged to award the contract to the participant with the leading bid in the Auction. It is likely that <<Company X>> will wish to enter into discussions with more than one participant upon completion of the Auction. There will be no further price negotiations on the stated Lot, so please ensure you have made your final offering in the Auction itself.”  

If there are a limited number of available suppliers and the incumbent not engaging adds to this, there are additional tactics that can be employed and differing types of auctions.

My category won’t work

Not all categories are suitable for auctions however, there are many categories that are and many more that people will be willing to consider (if you would like to know more the Category Hub is worth investigating). 

From a convincing stakeholders point of view, some felt if you start off with a less complex category such as stationery, it is an easy win. Others felt you need to win over stakeholders with a more powerful category such as building supplies for the housing sector. An example was given on a challenging category where contractors were installing boilers – a service related tender. Huge savings were gained as a result and therefore eAuctions were put forward for many categories from there on in. 

With this being one of the most common objections, it can easily be reduced with a full understanding of the category plus case studies to evidence where success has been achieved. Auctions are simply a tool to be used as part of a process and used in the correct way, can achieve huge business benefits.

Fear of change

Some fear change. Whether it’s the uncertainty of what the new process is, how it works, the technology used to run the auction, or the fear of losing an existing supplier they have built a relationship with. It was felt these fears were manageable with good communication, support, and above all ensuring that key stakeholders are included at the very start of the process. Training is also an option to support those who are unsure of how to correctly set up an auction to ensure traction is gained and a successful outcome is achieved. 

Experience and confidence in how to set up an auction, encompassing messaging strategies for how you want the suppliers to behave, with communication all the way, internal and external, could further help any fear of change. With the momentum of social interactions through good competition, you can better drive results, including this within the auction process with the work built in upfront can really help. 

Feeling exposed

When auctions are new to a business, some feel that it will highlight the savings they could have achieved in recent years. However, it was questioned that surely it is better to explore new methods when they are available than to ignore and hope no one else introduces them. Stakeholders who work with a proactive vision, and in this case, agree to run auctions to benefit the organisation, ought to be rewarded.

It was highlighted that cost savings are not the only benefit. Compliance and transparency are further benefits and one member stated that this worked for their organisation. Stakeholders were being challenged as to whether they were being transparent in how they were awarding business, the eAuction process provided them with evidence that they were adhering to transparency and compliant practices. The stakeholders were appreciative of the eAuction process to evidence this as without it, they would have struggled with their previous manual process. 

I am the expert in negotiations

Negotiation is a skill and many want to ensure they continue to be seen as the expert – they do not want to chance that technology may ‘outdo’ them. This isn’t necessarily the case.

Whilst technology streamlines processes, centralises data and saves time, there is still very much a need for the expert and this is where procurement professionals can maintain their position. 

A procurement team that introduces new processes and continues to source the best suppliers through utilising technology, is able to demonstrate even further how they negotiate within their expertise area. 

Also, simply put, it is not realistically possible for someone to negotiate with 100 suppliers across 30 countries and obtain the market price in 30 minutes.  

The face to face negotiation aspect is still very much needed and can be utilised more effectively in the categories not suitable for an eAuction or used to negotiate other factors after an eAuction.

What is the key to running eAuctions? 

You need your centre of excellence. Training buyers on how to use the technology, the process, and how to communicate with all parties involved is crucial to achieve the best results. It was also recommended that you have a dedicated person to run the auction on the day – if you have sufficient resources. 

Ask your suppliers for feedback – what are the pros and cons of taking part in an eAuction, is there anything you can do to help them to improve the process?

A lot of eAuction success comes down to experience, not just in running an eAuction but in the process of creating a structured tender and capturing all of the key SLAs’. If stakeholders are willing to allow procurement professionals who are well practiced at running eAuctions to build out additional parts of the process, such as weighting, many will see it is not always about price and you can focus on other criteria such as quality. This has made a difference for many as it has challenged views on auctions being purely price driven.

Some felt it comes down to mandating eAuctions “we will run this category via an eAuction unless you can tell me why it wouldn’t work”. You see finance and sales departments often being mandated to use systems, although the word mandated tends not to be used, it is best practice.

It was agreed unanimously that success comes from the preparation and set-up of the eAuction upfront. This is even more apparent when you are in a position of publishing the outcome. This preparation work must also extend to prequalifying suppliers with questionnaires as part of the eSourcing process ahead of running an eAuction to know you have the right suppliers taking part. It is recommended that you do not involve suppliers if you are not willing to award the business to them.

One member is a fan of Japanese auctions and it was discussed that you must use the right auction for your category. This comes down to the category specification, supplier liquidity, and what kind of result you need. A Japanese auction works very well if you have a restricted supplier base. A ranked auction works well if you want to look at price compression and improve your options. An open auction works very well if you are just interested in the lowest price. The day of the auction can also change the percentage of success with Friday the worst and mid-week the best.

It was seen as beneficial to explain to your stakeholders how an eAuction compares to in person negotiations, for example, imagine you have suppliers in three rooms and you are popping in and out of each room to negotiate between them. The eAuction version achieves the same outcome as the in person negotiations however, it dramatically shortens the resource effort and the cycle time. The increased transparency of the auction can also help to strengthen the relationships with suppliers.

It was suggested that perhaps it is the name ‘eAuction’ that is misleading. Perhaps it would be better as a multiple bid event. It may sound less dramatic if you leave it open for a week, however, another member had tried this tactic and they still experienced suppliers leaving it to the last minute to contribute. Using a multi-stage RFQ could be a happy medium between a traditional RFQ and an auction.

Concluding the eAuction discussion 

Whilst you can address and overcome many challenges, it is a continual process from top down and bottom up to take your stakeholders on the eAuction journey with you. And if it comes down to it: “don’t just trust me, here is the evidence that it can work”. 

It was a great discussion with a huge amount of experience in the room covering many categories and scenarios. If you would like to join one of our Procurement Question Time networking sessions, or you have a procurement topic you’d like to discuss, email us and let us know.