My First Reverse Auction

Yesterday I ran my first reverse auction for spend that I control and for a contract I will be responsible for implementing: Offshore Development Services. This was also TradingPartners’ first reverse auction for our own spend (rather than on behalf of a client). This was not a toy auction. This was a real auction for some spend that is very very core indeed to the company.

Auction setup

  • Reverse English Auction
  • Weightings incorporated into the auction on about 60% price, 40% non-price
  • Non-price was based on an assessment of things like: Size + Stability of company, Experience of similar projects, Quality of their ideas for enhancing the software, ability to scale the team, relevant certifications etc
  • Suppliers were able to see their price, how this converted to a score, and what the best score was. So suppliers could see how much they needed to drop their price to become best value for money overall. In other words they were genuinely bidding on a level playing field.

Auction results

 

  • I could see where a suppliers dropped out and so can have confidence that the price levels reached were
  • Savings were pretty impressive
  • A supplier I had thought was keen on the business did not bid as actively as I had expected.
  • Similarly a supplier I had thought of as an outsider came in with a very compelling offer.

No, I’m not going to tell you the baseline but feel free to drop me a line if you want to discuss the reverse auction more.

Some thoughts

 

  • Could I have done better off-line? No. In all my negotiations with software development companies, this was by far the best, fastest, and easiest.
  • Was it right to weight the auction? Absolutely yes. It was a little more work up front, and I nearly did give up trying to do it. I can see why so many buyers shy away from doing this. But I’m glad I saw the process through because it has given me a clear picture of where the market genuinely is and my work from here on is much much easier than it would have been otherwise
  • Would I do it again? Definitely. Some reasons why in a future post
  • I wonder whether buyers are unconsciously biased towards certain suppliers. For example, a supplier I had thought was very keen for the business did not really bid very seriously during the auction. Looking back at my previous conversations with that supplier I recall that they had evidently taken the time to read my blog and discuss the issues it raises with me, and I wonder whether that pre-disposed me favourably towards that supplier. Whereas, when you look at the market objectively through a reverse auction you see that there are probably other suppliers out there who are going to be better at delivering what you really need
  • Are the prices and offerings I have genuine? Have suppliers been gaming the system? Will I find them taking advantage of me later on? I hope not because the reverse auction was weighted to include our assessment of their non-price value-add. But time will tell.

I’ll let you know how I get on with implementing the contract.

In search of the $10 developer

I am pretty surprised that people still do software development where costs are high. For example Google are advertising for engineers based in London, Zurich and Dublin. Seems nuts when there are very highly skilled developers around the rest of the world who can deliver the same value for a fraction of the price.

Having said which, the price differentials between countries are themselves pretty staggering. And can change rapidly (e.g. prices in India are now far above the rates you could get in 1999 for millenium-bug testers, as has the level of skill, I am sure).

In this fragmented market I expect to see the development of trans-border outsourcing companies who can deliver quality developers at $10 an hour irrespective of where they happen to be based. And as a customer I could buy the services of this company even if this year that means my development is in India this year, next year in Russia, next year in China and next in Vietnam.