My First Reverse Auction

Yesterday I ran my first reverse auction for spend that I control and for a contract I will be responsible for implementing: Offshore Development Services. This was also TradingPartners’ first reverse auction for our own spend (rather than on behalf of a client). This was not a toy auction. This was a real auction for some spend that is very very core indeed to the company.

Auction setup

  • Reverse English Auction
  • Weightings incorporated into the auction on about 60% price, 40% non-price
  • Non-price was based on an assessment of things like: Size + Stability of company, Experience of similar projects, Quality of their ideas for enhancing the software, ability to scale the team, relevant certifications etc
  • Suppliers were able to see their price, how this converted to a score, and what the best score was. So suppliers could see how much they needed to drop their price to become best value for money overall. In other words they were genuinely bidding on a level playing field.

Auction results

 

  • I could see where a suppliers dropped out and so can have confidence that the price levels reached were
  • Savings were pretty impressive
  • A supplier I had thought was keen on the business did not bid as actively as I had expected.
  • Similarly a supplier I had thought of as an outsider came in with a very compelling offer.

No, I’m not going to tell you the baseline but feel free to drop me a line if you want to discuss the reverse auction more.

Some thoughts

 

  • Could I have done better off-line? No. In all my negotiations with software development companies, this was by far the best, fastest, and easiest.
  • Was it right to weight the auction? Absolutely yes. It was a little more work up front, and I nearly did give up trying to do it. I can see why so many buyers shy away from doing this. But I’m glad I saw the process through because it has given me a clear picture of where the market genuinely is and my work from here on is much much easier than it would have been otherwise
  • Would I do it again? Definitely. Some reasons why in a future post
  • I wonder whether buyers are unconsciously biased towards certain suppliers. For example, a supplier I had thought was very keen for the business did not really bid very seriously during the auction. Looking back at my previous conversations with that supplier I recall that they had evidently taken the time to read my blog and discuss the issues it raises with me, and I wonder whether that pre-disposed me favourably towards that supplier. Whereas, when you look at the market objectively through a reverse auction you see that there are probably other suppliers out there who are going to be better at delivering what you really need
  • Are the prices and offerings I have genuine? Have suppliers been gaming the system? Will I find them taking advantage of me later on? I hope not because the reverse auction was weighted to include our assessment of their non-price value-add. But time will tell.

I’ll let you know how I get on with implementing the contract.

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3 thoughts on “My First Reverse Auction

  1. Pingback: Auctions and Sustainability « Where Next

  2. Paul Gurr

    Does the unconscious (or in some cases, openly conscious) bias of buyers towards certain suppliers actually effect the pre-auction weighting and therefore make the playfield somewhat unlevel? Did you find yourself tempted to give a higher weighting to the supplier who had read your blog? In my experience relating weighting to actual financial numbers is hard enough – ensuring the weighting is done wholly objectively is even harder.

  3. To answer your question, Paul, yes I think there was some (unquantifiable) bias towards the company that had read my blog. And if I had done this sourcing project offline I may well have found some way, after the event, of justifying that particular company.

    However, the fact of forcing myself to work with the team here to come up with some weightings meant that I could not really justifiably give extra points to someone just because they “read my blog”. We only calculated weightings for things that we could justify with some confidence. One simple example: the size of the company was important because it would give us some confidence about their ability to ramp up rapidly when needed.

    So in short I expect that the biases you mention are prevalent in all kinds of buying decisions. People buy from people and it’s very hard to extricate the personality of the salesperson (and the buyer) from the equation. One way to combat this is to have the discipline of working out weightings before an e-auction and being more transparent, with yourself as well as everyone else, about how you intend to go about the award procedure. And then doing an e-auction.

    Two more points might be relevant:

    1. The supplier who read my blog did not get extra points for reading my blog and didn’t even come in the first 2 from a value for money perspective. To me this is reasonable evidence that the weighted e-auction helped us avoid at least some elements of bias.

    2. Your comment implies adding a $ value to each weighting. That is the not the only route you can go down, and is not the route I used here. You can work out scoring for non-price factors and then combine the total score with the price bid to work out value for money. I can feel another post coming on about different weighting systems I’ve seen ….

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