I was visiting a client recently who was asking the usual questions about reverse auctions: I can understand that they work for a very commoditised category which I have a high spend for, but how can they help with this more strategic strategy?
I hear this question so here are some brief thoughts.
Reverse auctions are helpful if you want to achieve a better price than what you can achieve otherwise. If you don’t care about getting a better price, don’t consider a reverse auction.
Of course auctions these days are far more sophisticated than the old price-based systems. Weighted and Multi Attribute auctions are capable of incorporating all kinds of non-price attributes into the competitive dynamic. With this in mind I’ll revise what I just said:
e-auctions are helpful if you want to achieve better value for money than what you can achieve otherwise. If you don’t care about value for money, don’t consider an e-auction.
Once you consider an e-auction there are some factors that could rule it out:
(a) Monopoly. If what you are buying can genuinely only be got from one source then, sorry, you can’t do much about it. But I wonder whether, with a little imagination, you can change the specs to some degree to allow competition? Just a thought.
(b) Unable to specify what you want. The EU directive on public procurement puts it well: You can’t auction the result of intellectual endeavour. In English, this means that you couldn’t auction the design of a building. But guess what, you can auction architect day rates. So, again, with a bit of imagination you might be able to specify what you want in such a way that it does become auctionable.
(c) You know and love your favourite supplier too much. Fair enough. But bear in mind that despite all the talk about “win win” that is in vogue these days, the supplier might just be taking a teensy bit of advantage
A personal perspective: I have been negotiating two contracts recently – one for software development and one for hosting. I used a weighted e-auction for the software development but elected to source my hosting offline. The offline negotiation has been much more of a pain in the arse for me than the online e-auction. I dare say that the suppliers feel likewise. Next time I will use an e-auction, if I can.