Reverse Auction workshop updates

I’ve been doing Reverse Auction workshops for CIPS (UK equivalent of ISM) for quite some time. These cover general issues in running a successful reverse auction and a fun game that is designed to show buyers the differences between English (aka descending bid), Japanese (aka descending clock) and Weighted (aka multi attribute) auctions.

Yesterday I did the first one of these events hosted by TradingPartners at our London office. It was a good session so we’ll be doing these workshops every month.

If you’re a bit sceptical about what a good reverse auction can do for you, or if you’ve only ever seen a reverse English price-only auction then there’s going to be something interesting in it for you. It’s also a good opportunity to network with buyers from other industries and to share reverse auction experiences with other buyers.

So far in the diary we’ve got 15th May and 19th June (both start at 9am in TradingPartners’ London office). Send a mail to me or check http://www.tradingpartners.com/europe/events.page and look for “free Understanding eAuctions workshop” for more details.

 

Reverse Auctions in a downturn (2)

Lisa Reisman over on Metals Miner has a rather more sophisticated analysis of reverse auctions in the current economic climate than most. Worth a read, but for the impatient (and click-averse), here’s the conclusion:

I would argue a reverse auction in a stagflationary environment can achieve benefits for the buying organization, more for further worked products containing metals than for semi-finished or raw materials. And though we still predict some prices to drop further this year, there is nothing like a reverse auction to show exactly where the market really is…

Web 2008 = Rock n Roll 1968 ?

The BBC may have written this in 2006 but I only just got it recently. Here are some quotes

If Web 2.0 is the new rock ‘n’ roll, who are the one-hit wonders and who will still be playing to packed stadiums in 40 years’ time?

The comparison isn’t quite as ridiculous as it may appear. Forty years ago, music was leading a social revolution, disrupting the establishment and empowering a new generation.

Today’s web technology and social media, known as Web 2.0, or the second wave of the internet, are leading a similar challenge and the long-term effects are likely to be greater.

Once again we are divided into those who get it and those who don’t. There is hyperventilating on the blog barricades about the end of the old order and the birth of the new counter-culture, information anarchy.

It was a recent posting on Confused Of Calcutta about Facebook that did it for me. JP is a long-time believer in the power of Facebook in the enterprise – but that’s not what I want to talk about here. Here are a couple of comments, one after the other, that really attracted my attention:

Ross Mayfield:

Part of what makes Facebook work across enterprises is it is new. That wont last. Part of it is fragmenting modalities, that will continue. Part of it is the trend towards the personal, but socially connected, and you know where that is going. Make things trend towards the transparent and you gain serendipitous discovery, and memory.

Ayesha Lakhani

But i guess..networking sites like facebook..if taken seriously can bring about a dramatic change in the appearance of the society.

I just came across one such group on facebook and i got to the positive effects of these applications..these are the highlights of the group:

Be the first generation to end poverty by 2015 with the United Nations’ Eight Goal Millennium Campaign.

1. End Hunger

2. Universal Education

3. Gender Equity

4. Child Health

5. Maternal Health

6. Combat HIV/AIDS

7. Environmental Sustainability

8. Global Partnership

Ross’s comment isn’t completely anti-Facebook. (The really anti-facebook people don’t spend time on the web reading and writing blogs). Yet there is a very clear difference in emphasis between Ross and Ayesha. On the one hand: Facebook is useful largely because of its novelty, which will wear off. On the other hand Ayesha’s wide-eyed enthusiasm does seem a touch, well, hippy-ish. Just as the BBC described.

And then here’s a comment on Sourcing Innovation about the power of social networkiness:

I am a recent Grad, who landed into the procurement industry extremely green (pun intend). I have found great uses for facebook, linkedin and recently www.iprocurement.org to help me network in this small but exciting industry. Due to the amount of Baby Boomers running around this profession, I believe this your reason for lack of new content and daily bloggers.

Now contrast this comment with the stated view of Sourcing Innovation’s owner in that post who is resolutely staying off Facebook (for example).

OK, I’m sold. But here’s the interesting point for me. If the Web in 2008 is equivalent to Rock’n’Roll in 1968 then .. well we’ve had our Monterey Pop Festival (1967) – but we’ve still got our equivalent of Woodstock to look forwards to.

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Bid rigging and e-sourcing

The Office Of Fair Trading claims to have uncovered more and more evidence of bid rigging in the UK construction industry. See here from Yahoo news today, here from The London Times Online on March 22nd.

The OFT press release here gives some more detail on the substance of the claims:

The investigation has uncovered evidence of bid rigging activities which include cover pricing, where companies obtain a price from a competitor in the tender process which is not designed to win the contract but is intended to give the appearance of competition. The Competition Appeal Tribunal has fully endorsed the OFT’s decision in its investigations and confirmed that cover pricing is anti-competitive and contravenes the Chapter I prohibition. In some instances the OFT has also found evidence in the current investigation of compensation payments or ‘bungs’ being passed between competitors in exchange for a cover price.

The construction industry has a reputation for resisting e-sourcing in general and e-auctions in particular as suppliers. I wonder how much of this reticence is down to a fear that e-auctions (in particular) make it harder for cartels to operate? Certainly, if you read this article from the World Bank  about an e-rfp system implemented in Andhra Pradesh, India (hat tip to Andrew Moorhouse for passing it on) – there is a view out there that e-sourcing systems may be a good way to combat cartels and collusion. According to the document there were some pretty blatant abuses in the manual system. One of which was:

Cartel formation to suppress competition: Through dubious means, the participating bidders would gather the list of prospective bidders for a procurement request. They would use this information to lobby for formation of syndicates or cartels and bid at higher quotations.

 

Reverse Auctions in a downturn (1)

Procurement Leaders opened its latest issue with the words “Good news, we’re in recession”. I’ve long agreed with this view, as you know, so it’s good to hear the likes of Jason Smith, Principal Advisor of KPMG’s procurement advisory service, reported in Procurement Leaders on the subject:

“Increasingly people are looking to procurement to deliver results,” says KPMG’s Smith. “They can’t actually increase the top line so it’s ‘how can we save money from within the business?'”

Smith points to e-sourcing, strategic sourcing and outsourcing as basic tools to help cut costs. KPMG estimates there is a typical saving of between 5% and 35% using e-auctions and 10% via strategic sourcing. But he believes there’s much more mileage in these techniques.

“The leaders are starting to adopt these tools but they’re not taking them beyond pilot categories such as office supplies. But how can they use those tools on the more strategic indirect purchases? There’s still a long way for even the leaders to go,” he says.

A good question to ask. From my (probably biased) perspective I would imagine a big part of the reason for failing to take these initiatives beyond the pilot stage is largely down to a lack of resource and focus within the buying organisation. Any other views?

e-Auctions in Supply Management

Gratifying to see that Andrew Moorhouse’s research has put e-auctions it into Supply Management’s news pages. Even if the news headline is the rather sensational “Suppliers disrupt e-auctions“.

Supply Management chose to focus on some stats, like the fact that some incumbents refuse to take part in e-Auctions. But there is some other information in the study which I’d like to emphasise here. I’ll declare an obvious bias given that I work in the e-auction industry, but nevertheless I hope these comments serve as some sort of counterpoint to the Supply Management version of events:

Incumbents who took part in e-auctions dropped to their bottom line price 86.1% of the time. 5.6% of the time they stopped above their walk away price (this was due to the incumbent having inside information from their contacts at the buying organisation as to what target price was expected). 8.3% even went below their walk-away price (this only happened when a senior director was present). If you don’t auction your incumbent you are leaving savings on the table.

Producing clear and unambiguous specs is a significant challenge when running an e-auction. Many e-auctions fail due to poor specifications. Only 37% of self-service e-auctions had clear and unambiguous specifications. But amongst third-party managed e-auctions, 78% of the e-auctions had clear and unambiguous specifications. A third party auction specialist will improve your auction result.

Here’s a quote from one of the respondents that Andrew used in his report: “3rd party self-serve auction tools have degraded and destroyed the reverse auction market place. Inexperienced procurement professionals didn’t maintain auction integrity and abused their position of power”. Again, you need a decent e-auction manager to run decent e-auctions

Citing data from CAPS eProcurement Benchmarking report 2007:

43% of manufacturers see an increase in e-auctions; 38% see a decrease; 19% see no change
50% of non-manufacturers see an increase in e-auctions; 28% a decrease; 22% no change. e-Auctions are on the rise. Sure, they still have a way to go but unless you are running an e-auction, how can you be sure you are getting best value in the marketplace? (I am not talking about lowest price only).

I’m sure you could find all kinds of ways of spinning the research – I can only suggest you read it for yourself and take on board its lessons for improving the design of your e-auctions.