Great article over at Purchasing.com http://www.purchasing.com/article/CA6474837.html?industryid=23508. It’s an interview with Kurt Doelling, Sun’s Vice President of Supplier Management in which he talks about Sun’s ongoing use of reverse auctions (or Dynamic Bidding Events, DBE’s, in Sun’s Parlance).
Apparently, of Sun’s $4bn annual spend with suppliers, $2bn or so is awarded via DBE, expected to rise to $2.7bn this year. That is a very impressive statistic and means they must be doing a lot right as far as e-auctions are concerned:
Some commentary on Kurt’s specific points:
- Reverse Auctions are based on Total Cost of Ownership rather than just unit price, with suppliers being score-carded on attributes such as availability, technical support and quality. This is great.
- Don’t invite rogue suppliers just to drive the price down. This is absolutely paramount. Inviting low-priced suppliers that you have no intention of doing business with purely to drive the price down is tantamount to shill bidding (which is fraudulent). Certainly it damages the credibility of your sourcing process.
- Sun only invites known suppliers to their reverse auctions. Whilst this facilitates the previous two points, it is interesting to learn that they would not include new potential suppliers in a reverse auction. This suggests that Sun already knows, and does business with, the vast majority of their potential supply base.
- Reverse Auctions are a way of transferring margin from suppliers to buyers. Blunt and honest. Presumably this is an important driver for all buyers.
- Award shares of business. It’s common sense, but good to hear a practitioner advocating sourcing from multiple suppliers rather then just one.
- Invite 3 suppliers to an auction. Although this seems to deliver good enough results for Sun this seems a bit on the low side to me.
- Only show suppliers their rank rather than best bid. When I was auctioned, being shown rank only was a demotivator to bid. Typically, auctions I have seen work better with best price being shown, assuming you can generate enough competition in the reverse auction.