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Negotiation is at the heart of a business’ procurement. You cannot negate the importance of this art of bargaining and getting the price to suit your budget to succeed in your business. With the advent of digital systems and e-practices in all industries, the geographical lines are slowly diminishing. You are no longer restricted towards purchasing from your country or state; you can buy goods and services from across the globe.
Negotiation has upped its game, too, in the process. With bidders joining the game from across the globe, more businesses are moving towards e-auction to help gain the right supplier for their needs.
What is E-auction?
As the word e suggests in the e-auction, this is an online bidding process. In this case, a single buying company can conduct real-time negotiations with multiple bidders/suppliers simultaneously. The process is pre-defined and structured. As all the buyers are connected and bidding, there is no need for a one-on-one discussion, thus saving the buyer’s time.
There are two major types of e-auctions:
- Reverse Auction: In this case, the suppliers bid against each other by submitting the lowest bids. They can keep lowering the bid and improving their chances of getting the business. It proves to be a fruitful method for procurement.
- Step Auction: In step auction, the suppliers submit their bid without knowing their competition or what request they are proposing. It is more or less used to gain a supplier in a category with few names enlisted.
Almost all suppliers can bid using the e-auction platforms and help the procurement agencies get the best vendor partner for their needs.
How to create an e-sourcing strategy for e-auctions?
An E-auction is a tool that helps with negotiations and deals. However, the real thing happens at the e-sourcing planning. First, you need to identify the category or portion you want to carry out the auction. It may not occur for every category or product.
Similarly, your end goal concerning the e-auction should be clear from the start. It will ensure that both the buyers and the sellers have clear expectations from the sourcing.
Check out the tips that will help you plan your e-sourcing strategy.
#1 Choosing the right sourcing strategy
You need to choose the one that best fits your requirements from the n-number of sourcing strategies involving outsourcing, joint ventures, and multiple suppliers. Then, depending on the sourcing strategy, you can effectively work out the best method to engage bidders.
You will need to consider the supply chain costs, the required infrastructure, how you will transport the goods, and other aspects before choosing the sourcing strategy.
#2 Requirements Study & Spend Pattern
Before you even dive into the e-auctions for the category, it is essential to identify the type you want suppliers to bid on. For this purpose, you will need to check the following for the particular category:
- What is the approximate size of the bid in this category? The amount that the bidders will gain owing to this category might reap their interest.
- You must also prepare the total number of items you want to offer for bidding if you plan the category. It is essential to estimate how many pieces (in the case of raw materials) you would be purchasing from them.
- The buyers need to identify the total cost of ownership right at the start for better strategies.
While planning requirements, make sure you open the category with a good number of suppliers and can be negotiated well. It is crucial to choose the category for which you can plan your requirements well.
#3 Liquidity Considerations
When planning your e-sourcing strategy, defining the category plays a pivotal role. We just looked at the requirements aspect and how it helps choose the correct category. However, it is equally important to look into the attractiveness and liquidity score of the category before proceeding with the strategy.
Liquidity score is associated with assets; it signifies how quickly the asset can be converted into cash.
How big or complex is the category you plan to introduce into the bidder market. For this, you will need to look into the sub-categories and total products within. If the number is large, we suggest avoiding it as it can complicate the whole e-auction process.
What is the annual spend for this category? As we saw earlier, if the spend is higher, it might attract more bidders. If people see the potential advantage of investing in this category, they will bid for it, and you will find more options.
The active supplier interest in this category plays a pivotal role in ensuring you apply for this category. It is important to note that you might not get a successful result if there are no suppliers or are not interested in bidding.
#4 Supplier Market Analysis
We saw one aspect of supplier market analysis while delving into the e-sourcing strategy. However, when conducting this analysis, you are also supposed to get answers to these questions:
- How much will you save on this category or products if you open the doors for e-auction? At this point, you need to measure the cost-to-benefit ratio for the supplier.
- What are the strengths and weaknesses of the current suppliers for the particular category? What kind of aspects are you looking for in the new supplier?
- Are you planning multiple suppliers or a single supplier?
It is essential to monitor the performance of the e-sourcing strategy by taking a look into your e-auctions and the related complexities. You might want to know if you need to improve the strategy or make it more flexible.
There are several advantages associated with e-auction against creating an RFP for the sourcing process. First, it is more standardized, and the entire spend characteristic is customized to the category or sourcing method you choose.
However, the only con is that you cannot conduct an e-auction unless the sourcing category is large and has multiple suppliers interested in the same.
If you have the right category and the interest of the suppliers, look at the spend potential and the requirements before proceeding. Make sure to have the right plan to result in a successful auction.