I’ve used 2 slides so far introducing e-auctions in general and outlining why you would want to run an e-auction and how different e-auction types will
The next 5 posts (including this one) will outline 5 different tips that buyers should consider when running their sourcing projects to maximise the benefits from e-auctions:
One of the highest savings I have ever seen in an eAuction was the one we achieved for waterproof matches for an arm of the UK’s Ministry of Defence. They had been spending about £1.5million a year on these. The eAuction identified savings of just over 75%.
Is this because eAuctions are some kind of magical system to achieve ludicrously low prices which are probably then going to be unsustainable by the suppliers?
No. Well not in this case anyway. Why will become clear later on.
In this case the buyer was strategically sourcing this category for the first time in a long time. During the process he discovered that his organisation was buying matches in boxes of 17. It turned out that manufacturers these days make them in boxes of 25. So they buying organisation was paying for someone to unwrap the boxes of 25, take out 8 matches and then wrap them back up again.
The buyer did some investigation: Was there a particular army regulation that stipulated that a squaddie can only have 17 waterproof matches in a box at a time? Are more than 17 matches in a box likely to light themselves spontaneously, and
So this is the first tip out of my five tips is: Revisit your specs, talk to the suppliers about the specs, make sure the specs make sense and make sure the suppliers are clear on the specs.
This is arguably a strategic sourcing issue as much as an eAuction issue. But there are two reasons why this issue relates particularly to eAuctions:
1. For an eAuction to be successful, all suppliers need to be bidding on a level playing field. One element of having a level playing field is having clear specificiations. While strategic sourcing best practice might be to have clear specs when you go to market, an eAuction forces you to adhere to this practice.
2. If you make such a fundamental change to the specifications as happened in this case, then how do you know what the market price really is? You don’t, and the only way you will find out is by running an eAuction. Without an eAuction in this case you could almost guarantee that the suppliers would offer some level of discount, but would not have offered anything like the 75% achieved in the eAuction.
I know that there are some buyers who are afraid of running eAuctions because they don’t want to generate “too many savings”. They want to “save some for next year” and/or are afraid of being asked by their boss to explain a large saving: ”so what have you been doing for the past 2 years?” Both of these may make sense from an individual buyer’s perspective, depending on their individual targets. But they are not the way to achieve real game changing results for the buying organisation. So double praise to the buyer in this instance for challenging old assumptions, engaging with suppliers and achieving such a tremendous saving as a result.
For completeness, here is the slide I used for this story. This one did bring me back in line with the 10/20/30 rule.