Benefits of Auctions for Sourcing Teams
1. Reduced Cycle Times
Reducing the cycle time to source and award and services is one of the main benefits of eAuctions over traditional, face-to-face negotiations. eAuctions can be conducted in as little as an hour instead of days or even weeks. More importantly, future sourcing events become more standardized and streamlined with the data collected from running eAuctions.
Standardizing eAuctions as a sourcing best practice will expedite the entire source-to-contract process from set-up to award and provide a documented way for sourcing teams to communicate value creation and savings to stakeholders.
The negotiation time in an eAuction is shortened from several weeks to around 45 minutes on average through streamlined communications – including Q&A – through the eAuction tool’s messaging functionality. Face-to-face meetings by phone or email should be reserved for clarification of the most critical details.
Succinct Post-Event Reporting
Instead of reviewing notes from multiple face-to-face meetings with several suppliers, a detailed report-out of the Total Cost of Ownership (TCO) prices expedites the evaluation phase.
2. Continuous Process Improvement
eAuctions provide structure and uniformity around the sourcing process, which makes it easier to create a best practices playbook for your team. Buyers can reuse each other’s eAuction templates and create new benchmarks to improve sourcing activities. This ensures a smooth experience and better eAuction outcomes.
Uniform negotiation procedures reduce friction between buyers and suppliers, resulting in stronger partnerships. When suppliers are approached in the same way regardless of the individual buyer, it helps the supplier know what to expect so both players can come to the table with better-informed expectations.
With a consistent sourcing process, it becomes easier to coach new buyers on the company’s sourcing best practices, which will increase compliance and reduce costly mistakes. Importantly, new buyers have access to previously run eAuctions so teams can cross-train on multiple categories.
A uniform process of evaluating suppliers also improves compliance. Parameters such as switching costs, penalties, and preferences will be visible in the eAuction, as these must be quantified to run the eAuction on TCO.
3. Global Market Insights
Multiple bidders in an eAuction give the buyer better insight into the real price of the product or service. This kind of transparency requires minimal resources and facilitates better planning for future sourcing strategies.
Every incoming bid in an eAuction is directly comparable (as long as the auction is created according to best practice), which makes the buyer’s job of evaluating the bids easier. Suppliers in an eAuction know exactly what they are bidding on. No additional factors can be brought into play during the negotiation.
On the contrary, there are many different factors (service levels, payment terms, quality, lead times, etc.) brought into play during a face-to-face negotiation, which makes it difficult for the buyer to objectively compare suppliers’ prices in the final analysis.
The market insight derived from an eAuction is also beneficial for suppliers, too. Suppliers that don’t win the buyer’s business may optimize and innovate supply chains to increase the chances of a successful outcome in future eAuctions.
4. Better Value
While the lowest cost is often the goal of running an eAuction, obtaining the best value ought to be the primary goal. Cost-savings are part of the value proposition of eAuctions when suppliers compete with each other. Research shows that eAuctions on average generate savings of 11.10%.
In an online marketplace, more suppliers can participate in the eAuction process. The increased global competition results in significant cost savings for both the buyer and supplier over traditional negotiations. When sourcing is limited to only local or regional suppliers, options become scarce, and so do savings.
Avoid Cost Increases from Incumbent Suppliers
eAuctions provide significant leverage for buyers with their incumbent suppliers. Not only will the supplier know that the buyer is exploring alternative suppliers, but it also keeps the supplier’s rates competitive with current market prices.