E-Auctions in India - Myths and Evolution
We are currently in the age of digital revolution. Global companies have started adopting digital platforms for streamlining their procurement processes from late 90s.
India too is not behind. In the past few years, there has been a massive push by the leadership teams across industries for working in procurement to digitise their businesses. We call this - an era of procurement technologies.
But it’s not fully there yet. Partially to the inherent complexity of Indian businesses - processes and workflows that need customisations that only few offer. And partially due to the resources needed to onboard the suppliers on the modern procurement solutions.
According to AT Kearney, online auction platforms sprouted around 10 years ago in India, but failed to catch up due to the reluctance of the companies to deal with unknown suppliers which was understandable given the sometimes obscure and murky nature of the way procurement is handled in India.
Evolution of e-Auctions in India
Early adoption of e-Auction platforms in India demonstrated stark benefits. Cloud-based solutions helped with providing cost effectiveness, a more coherent and navigable supply chain, a core command centre to buttress the digital capabilities in terms of mitigating risk, managing operational issues and improving contingency plans. These benefits outweigh traditional processes such as RFQ-led negotiations. E-Auctions generated better price discovery with the potential of saving crores.
State governments of Andhra Pradesh and Karnataka were paramount in adopting these platforms, and now as a part of their digital India campaign, the government has already launched Government eMarketplace and eNAM - two procurement specific platforms.
Famous editorial, The Hindu ran a story on E-Auction platforms in 2014, stating “E-auctions do away with nepotism and under-the-table deals when the state’s assets are sold off. That’s one blow against corruption.”
In late December 2019, the Finance Minister launched an e-Auction platform for assets attached by banks. She said “There has been information asymmetry when bank attached assets are auctioned which will come to an end with the launch eBkray.”
As of March 31, 2020, the total volume of 3.39 crore MT and 37 lakh numbers (bamboo & coconut) that collectively cost approximately Rs 1 lakh crore has been traded on e-NAM platform.
On eNAM, the Prime Minister said “This initiative will usher in transparency which will greatly benefit the farmers. It is a turning point for the agriculture community and the agriculture sector has to be looked at holistically, and it is only then that maximum benefit of the farmer can be ensured.”
Yet, despite the success stories, there are many companies which are still reluctant to go digital, mostly because of myths and misconceptions circulating in the Procurement industry.
Myth 1: Suppliers are not tech savvy
Ever since India’s 4G revolution, people all across the nation have access to the internet, even in the remotest corner of the country. Venture capitalist fund Mary Meeker’s annual report on internet trends listed in India as the second largest base for internet usage, accounting for 12% of the world’s population. According to a report by Internet and Mobile Association of India (IMAI), as of May 2020, Internet users in rural areas surpassed those in urban areas for the first time, As of last November, there were 227 million active internet users in rural areas which is 10% more than around 205 million in urban areas. In total, India had 504 million active internet users.
It may be true that some small or medium-sized suppliers may not be entirely comfortable with e-Auction platforms, but a part of the problem also lies in the complexity of most auction platforms which were not created keeping the Indian landscape in mind. This is where an auction platform like Procol excels, designed and developed in India, it can onboard even those vendors who are not tech savvy. Since it can work on any platform, vendors don’t need to have a computer to access the application.
Myth 2: Only a few commodities are e-Auction friendly
Almost all categories can be sourced online through e-Auction platforms. The key to it is understanding the market dynamics, the supplier-buyer relationship, creating a level of standardisation accordingly. Companies can utilise the digital capabilities of an e-auction platform by sourcing standardised specification items, agricultural commodities, and other items with volatile and fragmented supplier markets. According to The Hindu,consumer companies such as Dabur use e-auctions to procure key raw materials from global vendors and large public sector miners such as National Mineral Development Corporation and Coal India already sell iron ore and coal through e-auctions. LiveMint reported that Ahmedabad-based Auction Tiger which conducts online auctions for banks, asset reconstruction companies and NBFCs has auctioned 5,500-6,500 properties for State Bank of India in 2017-18. “The success rate of an auction is 30-40%. If the location and property are good and the price is less than market price, people buy. Not just banks, many asset reconstruction companies (ARCs) and NBFCs are also moving from offline to online auctions now and have approached us.” a senior executive at e-Procurement stated to LiveMint on condition of anonymity.
Changing the platform according to the market dynamics is something in which Procol excels. Procol can create customisations in their e-Auction platform to better align with a company’s way of working and dealing with the suppliers. Procol has helped companies source almost everything, from refined wheat flour to a car. Thus, understanding the level of consolidation, level of customisation and the client’s true requirements.
Myth 3: New Vendors jeopardise supply stability
A successful e-auction requires stiff competition from new vendors, and initiating new suppliers to join will result in a more competitive bidding. Currently, many Indian companies would rather negotiate with their existing vendors rather than onboarding new ones as they fear unproven vendors might disrupt the status quo. However, having a trusted platform such as Procol to bridge the gap between the buyers and sellers could eliminate this caveat. Having an expansive vendor base is imperative, as it not only increases competition among suppliers leading to better quality, price and delivery, but it also leads to better flexibility as a reaction during unprecedented situations that could endanger supplier’s capacity, like the Covid-19.
The Way Forward
More and more companies are adopting e-Auction platforms now, and with major government initiatives and the ever-increasing penetration of the internet in the country, the trend is likely to continue. E-Auction platforms can deliver major savings by offering benefits such as automation, optimised production, making their procurement more transparent, diversifying their vendor base, increasing buyer’s bargaining power and creating a highly competitive price discovery environment.
A case study of India’s neighbour Bangladesh can find relevance here, government-owned Dhaka Power Distribution Company (DPDC) for the first time in the history of public sector auctions in Bangladesh, introduced an electronic ‘e-auction’ platform, which proved to be immensely successful. Against the expected value of BDT 7.2 million, a total of BDT 8 million was received, an amount that is 10.77% higher. It is also worth mentioning that even the level of competition increased.
However, organisations that want to take advantage of e-auctions platforms must fully incorporate and integrate these systems into their management and future plans. Building towards a more digital ecosystem in procurement should be the priority for the entire procurement industry.
