eAuction

eAuctions work, especially up North.
Scanmarket has long been an acknowledged leader in eAuction theory, strategy and execution. The reason for this eSourcing expertise is our unique vantage point from working with and learning from some fabulous customers. These customers are daily pushing the boundaries of eSourcing to drive more savings, compliance, transparency, efficiency and business results.

Our home region of Scandinavia is a hotbed of eAuction activity. We’d like to take a small amount of credit for this prowess since we’ve been providing eAuction software and services here since 1999. Recently, our consultants have assisted in the execution of three particularly successful eAuctions. Since the best way to improve your own results is to learn from others, we’ve compiled some of the key points from each here.

Increased scope leads to increase savings

A global life-sciences company had not done any strategic sourcing on their significant spend on factory tools in a very long time. Part of the reason for the delay was the fact that the required scope was difficult to determine. With 2,000+ line items and a mix of products and services, this was certainly not a candidate for a quick “three bids and a buy” effort. Instead, this customer conducted a structured, three-stage eRFx process culminating in an eAuction.

As they started pulling together the information for the bid, the scope increased to include not just the tools themselves, but also the Vendor Managed Inventory (VMI) services associated with making sure the factories had the tools they needed, when and where they needed them.

The services portion of the spend is significant and, as a result, total bid value ended up being one of the larger events the company had run on their Scanmarket eSourcing platform. After reviewing the information from an RFI to five potential suppliers, it was determined that only three companies were qualified to participate in the next two stages. To ensure the best supplier for each area of the spend was chosen, the eAuction used a “cherry-picking” strategy where the buyer could award business by spend area.

The result, savings of 15%+ from the eAuction, is a strong proof of the significant potential in a category that has not been sourced in a long time.

Turning a complicated category into a simple negotiation

One of the key misconceptions about eAuctions is that they are suitable only for simple goods. A global energy company went to great lengths (literally!) to disprove this belief.

This company needed to perform maintenance work on energy platforms known as “jack-up rigs” far off-shore in the North Sea. This is a complicated service with very few providers. However, our customer was able to construct an eAuction event, that not only fostered competition between bidders, but also automatically differentiated quality levels through factoring, and increase compliance tracking by getting all the compliance requirements documented prior to the final bids. Best of all, the event generated significant savings from the incumbent supplier despite having only two bidders in the final round.

Big travel bid = bid data to manage

For any global organization, corporate travel can be a vexing category of spend to manage. The requirements are complex, the providers diverse across air travel, hotels, etc., and the stakeholders are many. Worst of all, a poorly constructed bid can result in your own senior executives receiving poor service when they travel. The last thing a procurement manager wants to be recognized for is making a mistake that causes the CEO’s travel to get messed up…

In order to properly construct a bid, especially one being taken to tender via an eAuction, it’s imperative to have a plan. Our customer, a global food science company, focused on several key aspects to make the bid a success:

• Coverage – more than 100 questions were put to four potential suppliers about their ability to provide travel services in 30 countries, creating an immense amount of data for the bid
• Data – the customer used Scanmarket’s BidMatrix system to collect, organize and evaluate all of the data collected
• Training – the customer enlisted support from the Scanmarket Consultancy team to conduct training sessions with all of the bidders and key stakeholders. In this way, everyone involved in the bid knew exactly what was expected of them and were able to focus on the business at hand rather than the technical “click-here, click-there” parts of the process

By working with Scanmarket, our customer was able to find new travel management providers and generate savings in the high single digit percents. Given the size of travel spend for this company, this represented a significant win.

There’s no easier way to start a heated discussion in procurement circles than to bring up the topic of eAuctions.

Some love them, some hate them, but nearly everyone has an opinion. While that has made for great content in blogs and conference sessions, it’s also clouded the issue.

When eAuctions first started around the turn of the century, conventional wisdom held that eAuctions were only suited for:

• Simple categories and products only (no services)
• Focused solely on price
• Tilted in favor of buying organizations
• Needed each project to be perfect for it to work
• Hard to learn and execute

Each of these “reasons” were totally wrong. 

Instead, eAuctions have developed into a bidding approach that has wide applicability and acceptability.  This is borne out by the usage statistics. At Scanmarket, we have seen dramatic increases in eAuction usage including a 101% increase in events in 2017 and continued increases so far in 2018. 

Several factors have led to this increased adoption, acceptance and usage:

1. 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
2. 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
3. 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
4. Non-savings benefits such as compliance, audit trail and efficiency have encouraged usage 
5. 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
6. New categories in services, transportation and others have become “hotbeds” of eAuction activity with thousands of events conducted on the Scanmarket platform
7. Process improvements have made it even easier for bidders to participate and more bidders means more bids means more savings
8. 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. 

For  more  information  on  these  approaches  or  to  learn  more  about  how  Scanmarket  can  help  you  achieve  your  business  objectives,  please  visit  us  at  www.scanmarket.com.

Scanmarket.  Easy. Proven. Results.     

The fact that eAuctions deliver consistent and meaningful savings has been proven time and again since the late 1990's with savings rates averaging 11.10%.

However, those savings do not "just happen" and results vary based on how events are run. In order to capture the best savings, you need to carefully select, prepare and execute your events.

Based on a review of the eAuction activity on Scanmarket's eSourcing platform across 300+ global companies, there are five key but frequently overlooked elements to maximizing your eAuction results:

1. More bidders = more savings
2. Choose the right auction format
3. Train bidders well
4. Provide a good target for bidders
5. Give bidders support during the event

1. More bidders = more savings. For reverse auctions, the number of bidders matter. Based on Scanmarket's analysis, the savings rate for reverse auctions increases by about 1 full point for each additional participating bidder added. Since about 75% of invited suppliers actually participate in the event, be sure to invite the right number of qualified bidders to your event. It is important to note that this holds true for reverse auctions but not necessarily other event types such as Dutch and Japanese (see #2 below). This also clearly shows the value of sourcing after new potential suppliers and/or working with your product specifications to widen the competition.

2. Choose the right auction format. eAuctions have come a long way since the one-line, price-only events that made headlines in the late 1990's. Now you have many event format options including Reverse, Japanese, Dutch, Factored and others.  As one example, using Dutch or Japanese auctions (click here for definitions) when there is a smaller number of qualified bidders can in the right situations lead to significant improved results compared to traditional reverse auction formats. This is especially apparent when looking at auctions with five or fewer bidders. Doing that upfront analysis of the competitive situation in between your pre-qualified suppliers and knowing how many that actively will participate in the auction is therefore essential in defining and choosing the right strategy for your auction - in the end this could influence your savings rate with up to several points.

3. Train bidders well. It is common sense that bidders who are comfortable with the process and technology will be more active participants. Scanmarket's data shows that more active participants leads to better eAuction results as well. As the number of bids per line increases, so do the overall savings from the event. Based on the events managed by Scanmarket, there is a correlation between the amount of training time and supplier conditioning invested in the event and the results. The data clearly shows the value of spending that extra time upfront on preparing and training the supplier in order to maximize the result of your auction.

4. Provide a good target for bidders. By the time you get to an eAuction, you have already qualified the bidders or, perhaps, they are part of your existing supply base and are invited to numerous events. In the same way that you have "done your homework" on the bidders, let them do theirs when it comes to constructing their bidding strategy. Again the more the suppliers have been able to prepare for the auction and the more they understand the process the sharper on the price they will be:

• Releasing specifications well in advance of the event
• Conducting a review session(s) (via conference call or web meeting) prior to the event to condition the suppliers and clearly communicate the rules of the game etc.
• Provide a structured communication process that guarantees all bidders have the same information

5. Be active during your auction. Active use of the messaging function drives bidder activity and savings. Based on Scanmarket's analysis of platform activity, 80% of all buyer messages during an event led to continued bidding. Buyer messaging provides not only encouragement but it also shows that you are involved and engaged in the negotiation. It is of course important to keep messages short, simple and well-thought. Defining the messaging strategy upfront, including a written policy, is key to success here.

Many of these best practices may seem like common sense but all too often, in the rush to get events "out the door", companies will not invest the time or resources necessary to get the best results. While these best practices contribute to better eAuction success, it is important to remember that good eSourcing starts with good sourcing. You still need to have good specifications, a competitive supply base, and a carefully selected category that will encourage supplier bidding.

For more information on this data or to learn more about how Scanmarket can help you achieve your business objectives, please visit us at www.scanmarket.com