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.


One response to “e-Auctions in Supply Management”

  1. I was actually a little disappointed at the way SM have reported this interesting research. Whilst some of the comments reported in the Huthwaite report do display a certain level of disillusionment by vendors who have been on the receiving end of poor behaviour from their potential customers, I think that better use of column inches could have been made by focusing on the practical implications for purchasers.
    Whilst I would like to think that procurement professionals’ approach the use of reverse auctions in the same way in which they use the remainder of their toolkit, it’s clearly not the case in every instance and a number of bad apples are at risk of spoiling the entire bunch.
    I would have preferred to see CIPS’ official publication focus on the ways to promote the adoption of the transparent and ethical use of these valuable tools. It’s clear that reverse auctions can and do work, delivering significant business benefit, not exclusively to the buyer’s organisation, so let’s put the tone of the article down to journalistic exuberance this time…

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