I gave one of our e-auction game workshops today for a group of students studying post-grad degrees in Logistics. The games are always great fun to do and the question and answer sessions can be very illuminating. In particular, consider this scenario:
At the end of the auction in lot 1 the incumbent offered a reasonable, but not very impressive saving. On the other hand a new supplier came in with a very aggressive price and a saving that couldn’t just be ignored. This new supplier had credible experience and good references in another geography, but none at all in our country of interest.
How should the buyer go about the award process?
By the end of the debate the general consensus was that the buyer would be well served by awarding a small part of the volume to the new supplier, with a view to awarding the new supplier the whole lot if performance were satisfactory. However, the group felt that splitting the lot this way would contravene the rules of the auction and so might not be permitted.
Experienced buyers may scoff at such apparent naivety: of course buyers can change their minds if need be; it makes no sense in the real world to let yourself be hamstrung by a process that doesn’t let you achieve your goals.
All fair enough but the concerns do raise important issues that buyers should take on board:
- Know your supply market before the event. If there are new entrants to the market who are prepared to be aggressive on price, it is best to know this early in the process. It may even affect the way you structure the bid.
- Suppliers will have more respect for buyers who play by the rules than for for those who (they feel ) are out to extract whatever advantage they can. Whether you need this respect is a separate question … though presumably long-term collaborative relationships will be tough without it.
Of course, these kinds of issue apply across all kinds of sourcing irrespective of whether e-auctions are used as part of the process. But the extra transparency provided by e-auctions brings them into stark relief.