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Situation

The buyer, a large manufacturing company needed to source important and complex material for steel production at competitive prices while having the flexibility to try new suppliers. While there were multiple qualified suppliers in the market, the customer only had direct experience with a few and could not transition all of their demand to a new supply base. The buyer needed an approach that balanced the interest in finding new sources of supply with the need to protect a key commodity’s supply chain. This situation called for the eAuction Rule of Thumb: Expanding the pool of bidding suppliers will expand your competition and savings.

Solution

  • Buyer divided its volume into 3 bidding lines and invited suppliers to each line depending on how much experience the buyer had with the supplier:
    • Line 1: 50% of volume – only suppliers with significant buyer experience could bid. Full commitment (award) to the winner
    • Line 2: 25% of volume – the above suppliers and suppliers with some previous buyer experience. Full commitment (award) to the winner
    • Line 3: 25% of volume – all identified suppliers, including new potential suppliers, could bid however no commitment from the buyer to winning supplier
  • Line 3 served two purposes:
    1. Line 3 had many bidders yielding high competition; buyer further increased competition on line 1 and 2 via Scanmarket’s ”Linked lines” functionality
    2. Line 3 also provided the buyer an opportunity to test the competitiveness of new suppliers without requirement to make a full award to the winner

Result

  • eAuction strategy yielded high bidding dynamics and attractive prices for the full volume while still protecting the supply chain
  • Over 350 bids received
  • ”Linked Lines” functionality further increased competition
  • The buyer was able to introduce a new supplier into a critical category