Negotiating with large, global suppliers can be a challenge, especially when it comes to complex oil products. This case describes how the Danish shipping company TORM managed to obtain very satisfactory results, conducting an eRFP followed by an eAuction on oil products. Solid, preliminary discussions and a carefully thought out strategy played significant roles in the negotiation process.
TORM operates one of the largest and most technologically advanced shipping fleets in the world. Lubricant oil is a strategic category for TORM with a multi-million spend annually. In this case study, Senior Category Manager Michael Rubio explains how he handled the eSourcing process when selecting new suppliers of lubricating oil for a two-year contract.
Challenge and strategy
The challenge was to organize a set up that allowed TORM to compare the products like for like and hereby take out the complexity. Several suppliers highlighted differences in the oil types as being an important parameter to consider. TORM gave the suppliers the opportunity to specify this in an RFP and provided guidelines for a fair price indication.
As expected, the RFP yielded savings partly as a result of the underlying market for base oils had declined. Given the favourable market conditions, TORM had already decided to speed up the process and conducted the eAuction a few weeks later. The buyer invested considerable time in preparing the suppliers prior to the eAuction. Advised by Scanmarket, a flexible auction set-up was chosen, allowing suppliers to submit bids for multiple ports/destinations rather than a total bid for all.
The set-up also allowed multi-attribute bidding in regards to a contract incentive paid annually to TORM, providing more opportunities for the supplier to provide the best possible offer.
Process and LIVE Auction
TORM had asked Scanmarket to assist in setting up the RFP as well as the eAuction. Scanmarket also handled supplier communication and held training sessions prior to the eAuction to ensure suppliers felt comfortable with the process.
“I had Scanmarket on the phone throughout the eAuction to help posting messages to suppliers – this really helped pushing the bids” says Michael Rubio, Senior Category Manager at TORM.
5 global suppliers participated in the eAuction and it lasted almost 2 hours – a lot longer than expected. It was a very dynamic auction with high bidding activity. The auction was extended 36 times and the suppliers submitted as many as 50-70 bids each. Substantial price reductions were achieved, which is a clear sign that TORM is an attractive company to do business with.
“The interest for TORM has been intense. It is a clear sign that suppliers see TORM as an important player in the industry and interested in doing business with us”, says Michael Rubio.
"I had Scanmarket on the phone throughout the eAuction to help posting messages to suppliers – this really helped pushing the bids"