Reverse e-auction myths

The doctor kicked off a post taking a swipe at some common e-auction myths here: http://blog.sourcinginnovation.com/2007/12/03/the-doctor-goes-mental-on-auctions.aspx

Obviously, I have a view as well (!), so here are a few more to add to the list

Reverse e-auctions damage supplier relationships. In a comment on a recent post, David Stone put it best: It is the decision to go to market that threatens relationships, the method by which you go to market is not relevant, you handle the threat by efficient communication and supplier management. If a change of provider is required, an auction actually gives suppliers greater visibility of our sourcing reasons and handled properly can strengthen relationships.

Reverse e-auctions are only about price. In the EU public sector, at least, they are not. Since January 2006, any public sector body using an e-auction must award the contract to the winner of the auction. This means that buyers must factor their evaluation of non-price factors into the e-auction itself – so a bidder who is ranked first in the e-auction is in first place overall. I’ve seen a whole range of this kind of auction in the intervening 20 months: from Consultancy Services at 35% price, 65% non-price through to Electricity at 90% price, 10% non-price.

Reverse e-auctions are only appropriate for commodity items, not for services. If you can specify it, you may be able to auction it. For example, you can auction architect day rates, though you probably can’t auction the design of a building.

I have written two white papers on the subject of reverse e-auctions:

  1. A giant step forward for eActions (about the impact of the 2006 public sector regulations on e-auctions)
  2. Does procurement e-auction design matter? (about how different auction designs affect the auction result)

If you’d like a copy then feel free to drop me a line.

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7 thoughts on “Reverse e-auction myths

  1. Jim DuBois

    I am interested in your white papers on the impact of public sector regulations on e-auctions as well as the paper on e-auction design. Could you please forward a copy of each to me?

    thanks and regards,

    Jim DuBois

  2. Sofia Norberg

    I couldn’t agree more! I have to say that eAuction myths quite amuses me, when you know what eAuctions are really about they feel so naive…I’m going to release a Project eAuction at my company and have just finalised the introduction session for the launch which I called eAuction Myths! Seeing as you seem more than competent on the area do you have any personal favourite online tips where to find relevant blogs, article etc regarding eAuctions?

    Thank you in advance!
    Best regards,

    Sofia

  3. David Stone

    I have an internal presentation:

    “With any process there are risks or difficulties. It is important buyers and suppliers understand these so their effects can be minimised. Constraints that apply to other methods of
    sourcing can apply equally to auctioning and often the answer to a question about auctioning is ‘What would you normally do?’

    Auctions reduce a supplier’s ability to demonstrate their overall value.

    There is nothing in it for suppliers.

    Suppliers need not bid their best prices; they only need bid a winning price.

    The web based nature of auctioning risks confidentiality.

    Only a narrow range of commodities suit auctioning.

    Auctions threaten relationships.”

    The answers are self evident to the sort of people that read these blogs and I bet they can add others. But it is a useful device to promote engagement and take up, the only thing to add is an awareness of the grain of truth in some myths.

  4. Alkiviadis Trigas

    I work for a company which provides eAuction services in Greece. We use an eAuction platform and we provide ASP services to large organizations that wish to organize eAuction events. Lately we experience the formation of supplier cartels, to a specific industry, during online events, thus not allowing prices to decrease sufficiently. Does anyone can propose technics that can be used to break the formation of supplier cartel during an event ??

  5. Hi Alkiviades

    I haven’t forgotten your comment. You raise a good question which is worth longer discussion so I am working on a posting about collusion which I’ll put up over the next few days.

    Happy New Year!

  6. Pingback: Collusion in e-auctions « Where Next

  7. Philip Briffett

    Following on from the question from a Greek company about ‘how to deal with cartels during an online auction?’ to my collegue Alan Buxton. I have personally experienced this twice during my 6 years of managing auctions. The first time the two companies involved met in a bar a couple of days before the auction and agreed to stick to a final price and for neither one of them to move. During the auction one of them broke their agreement and went below the agreed price. Suffice to say I have never seen an auction with such aggressive bidding following the break. The second time was where the industry organised a conference on the day of the auction so that they were all in the same place at the same time. Unknown to them we had managed to have suppliers involved that were not part of the consortium. Again this caused the suppliers to respond first as a group and then indivdually. Both were successful auctions. Based on this experience the bottom line is that you need to prepare in advance if you believe there is collusion occuring and try and include other non-effected suppliers. Or speak to the suppliers involved indvidually and make the point that you know that there is collusion going on and that you only want to deal with one supplier that you can trust. Speak to them and be open and tell them you expect the same from a working relationship. The best way to break it though is to include outside suppliers in the auction

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