Traditional vs. Dynamic eAuction Negotiations
Traditional Face-to-Face Negotiation
The duration of a traditional face-to-face negotiation process is typically no less than 3-4 weeks, during which the buyer negotiates with approximately 3-4 suppliers. This results in a process, where each new bid is followed by an analysis in order to determine how to proceed in relation to the negotiations with the remaining suppliers.
The cycle time for a face-to-face negotiation is extensive due to the necessity of having several negotiation rounds with each supplier individually. The comprehensive process limits the number of negotiations rounds, as it is not feasible for either the buyer or supplier to travel back and forth constantly.
Dynamic eAuction Negotiation
The structure of an eAuction differs significantly from the traditional process, as all the suppliers are gathered in one virtual negotiation room and submit bids simultaneously. The supplier can immediately respond to another suppliers bid, and the buyer can immediately see the impact on the bid hierarchy.
The duration of an eAuction will on average last 50 minutes with 5-6 participating suppliers, who on average improve their bids 23 times during the eAuction.
eAuctions Over The Years
Over the years, eAuctions have developed into a bidding approach with wide applicability and acceptability in the procurement industry. This is borne out by the usage statistics.
At Scanmarket, we have seen dramatic increases in eAuction usage including +100% increases in events consecutively since 2017.
Several factors have led to this increased adoption, acceptance and usage:
- The software platforms are significantly more advanced providing new functionalities for incorporating information, process and feedback. This has been done through more structured user design and development approaches
- Much more information is readily available about the process and how to make eAuctions successful and standard process now emphasizes bidder inclusions, information and transparency
- New strategies have been developed to make eAuctions not just viable but successful in areas that previously were more difficult such as limited supplier competition, incorporation of factoring for non-price variables, switching charges and alternative eAuction formats such as Japanese and Dutch
- Non-savings benefits such as compliance, audit trail and efficiency have encouraged usage
- Statistics and intelligence are now widely available to help users identify likely categories for success based on current market trends and what’s been successful for others
- New categories in services, transportation and others have become “hotbeds” of eAuction activity with thousands of events conducted on the Scanmarket platform
- Process improvements have made it even easier for bidders to participate and more bidders means more bids means more savings
- Why not instead of Why? It used to be that the event needed to be perfectly suited in order to be put through an eAuction. Now, the more typical approach is defaulting to an eAuction unless there’s a reason not to. A rule-of-thumb that works well is the 3 C’s. If there is a:
- Competitive supply base
- Comprehensive specifications, and
- Compelling spend, it’s probably a good candidate for an eAuction
These changes in technology, information and process have greatly opened up the acceptability and adoption of eAuctions. As eAuction specialists, we at Scanmarket are involved in events every day. Unlike the early days, it’s rare that we hear participants, especially bidders, express surprise or dismay when they are invited to an eAuction.
eAuctions should be used by all organizations as an important part of their overall eRFx program. While they’re not suitable for every project, they’re appropriate a lot more times than most people think.