I am sometimes nervous of showing this information because it is a warts-and-all summary of the case where we have managed a reverse auction for the same client, for the same category, two years running.
But it does address one important assumption that many people have about reverse auctions in particular and strategic sourcing in general. This assumption is that, once you have reverse auctioned (or strategically sourced) a category, there are no further benefits to be achieved by reverse auctioning it (or strategically sourcing it) again.
So here’s the slide. It shows the savings from 6 different categories which were auctioned two years running. The blue bar represents savings in year 1; the orange bar the further savings in year 2.
In some cases you make larger savings in year 1 than in year 2. In other cases you make smaller savings. In some cases the price goes up. (This is life, right?). The simple point is that there is no simple rule that says you cannot run save money by running a reverse auction on the same category twice. (*)
It’s not even (just) as simple as tracking the general price trends in the market. A colleague once told me the following story about some paper products.
We had a client who had recently auctioned some paper products. They had achieved a good price and since their auction the paper price indices had risen. So they were understandably nervous about what would happen if they went back to market. What they didn’t know was this in the meantime one of the large banks had just completed a significant consolidation exercise in the same category. In other words, while some suppliers to that bank had seen their orders increase, there were many suppliers who had suddenly lost a customer. Ironically this meant that despite a rising market there was a lot of surplus capacity in certain sections. To cut a short story shorter our client did go back to market and did secure a further (modest) saving.
So tip number 3 – which again is as much a strategic sourcing issue as it is a reverse auction issue is: Know your market, and get as far behind the headlines as you can.
Back to a strictly auction tip in my next post.
(*) If you are facing price increases, then running a reverse auction is a great way of minimising those price increases.