Does Procurement eAuction Design Matter? (part 4)

An effective instant messaging strategy is critically important if you want to get the maximum benefit out of your reverse auctions. 

Here’s my slide to illustrate the point: you will need to click to enlarge.

There are 6 suppliers, A through E bidding in an eAuction that started at 11am and ran until just short of 1pm. This was for an eAuction for pet food, but the same applies to every category I have seen.

The blue crosses represent when a bid was placed. The red diamonds are when an instant message was sent from the buyer to the supplier. A green triangle is when a supplier sends an instant message to the buyer.

Immediately you see the a few key facts:

• Sending a message to a supplier is a very powerful way of encouraging them to bid. I have marked with orange ovals on the slide where a message was almost immediately followed by a bid
• Messaging is an important means of bringing the human conversational touch back into the negotiation. The human side can be all too easily lost in an eAuction but you can see here several exchanges of messaging between buyer and supplier. In particular I have marked one with Supplier B towards the end of the event.

Some questions I get when I make this point:

• Isn’t in unethical to favour one supplier by messaging them? It is a wrong assumption that messaging a supplier implies any kind of favouritism. If the message is reminding one supplier that they haven’t bid for 20 minutes then I believe that this is a perfectly fine message to send. Of course messaging, like any other tool, can be used well or badly so it pays to have someone who knows what they are doing managing the messaging strategy.
• Wouldn’t you get the savings anyway when the reverse auction comes towards the end? Well, arguably you might. But it’s pretty clear that you guarantee those additional savings through judicious messaging. And I think most buyers would prefer to be sure of getting additional bids through a well-designed messaging strategy rather than to sit and hope!

To continue the last point – one of my colleagues in a past life did some analysis of instant messaging in reverse auctions. His analysis suggested that instant messaging increased the average savings from a reverse auction by about 6 percentage points. Now I haven’t seen the analysis, and my personal view is that it is pretty hard to put a number on the savings that messaging would get you. But without a shadow of a doubt an effective messaging strategy does generate more activity which does generate more savings.

So it surprised me enormously when I found out that some eAuction software out there (yes, even in 2008) does not support instant messaging during an eAuction. And I’m talking about some of the more highly regarded software in the marketplace. So: if you are looking at a reverse auction, make double sure that your provider not only has the facility to do messaging, but knows how to use it.