real world sourcing series - maximising success from eauctions

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Maximising Success From eAuctions

Maximising Success from eAuctions

Guy Allen May 30th 2012

Spend Matters UK/Europe



Part 1 – Introduction

The Real World Sourcing Series is a series of 6 sessions covering hot topics for procurement professionals.

The Real World Sourcing Series is promoted and supported by BravoSolution, and developed by Peter Smith (Spend Matters) and Guy Allen (4C Associates).

Guy Allen started his procurement career with Ford Motor Company, moving through IBM, SmithKline Beecham and GSK before becoming CPO for Abbey National and VP Global Sourcing at Fujitsu. He took up his current position as Managing Partner at 4C Associates at the beginning of this year

Spend Matters UK/Europe Spend Matters UK/Europe Spend Matters UK/Europe



Agenda

1. A Short History of eAuctions

2. Determining Suitability for eAuction

3. Overcoming Internal Resistance

4. Planning and Setting up the Auction

5. Benefits of eAuctions

6. eAuction Case Studies - a View From the Sales Side




1998 - SmihtKline Beecham amongst the first to run eAuctions

2000 - eAuctions start to be on conference agendas

2001 - GSK had run in the region of 100 auction on direct and indirect categories

Now – Many major banks, manufacturers, government departments, IT companies etc etc have auction strategies

So I’ll assume I don’t need to cover the basics



There are some great examples of organisations that have extensive and effective eAuction programmes

BUT

These organisations are the exception

In general eAuctions are:

Not widely used

Where used, they are effective



What is an eAuction?

• Electronic means of sharing market information to interested parties

• Soliciting responses to the market information from suppliers

• Typically downward bidding to win the right to supply

• This session is not covering eRFXs

Provides Transparency to Supply Base and Internal Customers



Kraljic Matrix (adapted)

Low High

High

Magnitude of spend

Sup

ply

ris

k

Critical Strategic

Acquisition Leverage

Collaboration - close supplier management:

• detailed contract • collaborate • market awareness

Drive for value:

• market pricing • aggressive approach • use leverage

Minimum attention:

• price formula • call-off contract • look to rationalise

Ensure availability:

• long-term contract • price indexes • contingency planning




Four Criteria for Determining Suitability for eAuction

• Is the Requirement Definable?

• Is Your Business Attractive to the Market?

• Is There a Competitive Market?

• Can Selection Criteria be Defined?




Exercise 1- You are Invited to Take Part in a Real Auction


• Increments of £5 up to £35, £1 thereafter

• Payment to be made immediately before lunch

• £50 will be handed over once payment is made


Resistance Maximising Success From eAuctions

£ Target Spend

Sup

plie

rs



Causes of Buyer Resistance

• Intransigence

• Fear of current deals being made to look poor

• Fear of transparency

• Fear of losing their job

• Fear of losing control

• Devaluation of buying/negotiation skills

‘For the last ten years I’ve spent a lot of time going around meeting lots of organisations and meeting up with tons of buyers. Its often not a particularly fulfilling experience because they are mostly negative, out of the loop and have no real idea on how to contribute to their organisations’

Andy Brown – Purple Thinking



Impact of Poor Adoption

• Fewer eAuctions – reduced saving opportunity

• Compromised auctions reducing effectiveness

• Too much collusion with internal clients/suppliers

• Targets set for minimum values through eAuction

• eAuction capability taken out of Procurement’s hands, placed with another department or external provider


Maximising Success From eAuctions Planning for Success

• Clear RFP and requirements

• Split criteria into ‘quantifiable’ or Go / No Go

• Price quantifiable factors - adjust auction pricing accordingly

• Get internal stakeholders on board

• Do not shortlist

• Choosing what the suppliers see

• Clear and consistent communication to suppliers

Complete Clarity on What the Winner Wins




Exercise 2- Another £50 is up For Grabs


• Increments of £5 up to £35, £1 thereafter

• Payment to be made immediately before lunch

• £50 will be handed over once payment is made


Maximising Success From eAuctions What is the Prize for Winning? A Number of Options:

• Winner takes all

• Guaranteed shortlisting

• First choice testing

But NEVER ‘We will use the Auction price together with other factors to

determine the winning bidder’


Maximising Success From eAuctions Why eAuctions Are Good For Your Company

• Provide transparency of process and supplier selection

• Challenges relationships that perhaps have become too ‘cosy’

• Easy identifiable success for Procurement

• Solicit Senior Management Support for change

• Removes the ‘nasty’ job of talking about price from the relationship


Maximising Success From eAuctions Why eAuctions Are Good For Your Supply Base

• Provide transparency of process and supplier selection

• Gives real feedback to suppliers on their market competitiveness

• Provides opportunity on a fair and level playing field to non incumbents


Maximising Success From eAuctions What you risk losing by running eAuctions

• Collaboration on jointly developed products and services

• Innovation

• Market Informed Sourcing


Maximising Success From eAuctions Exercise 3 – Some Challenging Categories

• Table 1 – Shop signage for 750 shops across the country for properties of varying sizes

• Table 2 – Legal Fees of a multi national company

• Table 3 – Laptops that require 1 month of testing before they are cleared to be added to the corporate network

• Table 4 – Lab Supplies, where anyone of 5000 product lines maybe required



• 3 bidder auction

• No commitment to what the winning bidder would actually win

• 6 lots - No consolidated view of the whole bid

• Able to bid higher than our original bid

• Could not see the winning bid price

OUTCOME

• Didn’t want to win the auction, just wanted to be seen to take part

• Eventually ‘won’ 3 lots, 2nd in remaining three

• Received no business

Case Study 1 - Seen from Supplier perspective



• Major Procurement, 4 bidders • No commitment to what the winning bidder would actually win • Not an apples to apples comparison – incumbent was bidding a different

specification • 8 lots, but the distinction between them was ill defined • No consolidated view of the whole bid • Could not see the winning bid price

OUTCOME

• Came last

• But still one of two shortlisted

• Specification changed significantly twice after the auction

• BAFO prices requested months after the auction took place

Case Study 2 - Seen from Supplier perspective



• Shop Frontage – customer facing impact • Long running incumbent • Every shop being different – grouped into different types and size of shop • Significant resistance from internal department • Introduced and pre approved 5 new suppliers • Winner takes all auction

OUTCOME

• Pricing came in at 50% of budget

• Incumbent reduced price by 30%

• Procurement credibility greatly enhanced

• Property department credibility damaged

• New supplier successfully implemented signage change

Case Study 3 - Seen from Buyer perspective



Some Final Thoughts

• Pre approve the potential bidders as far as possible

• Define all non cost requirements a value or classify them as a hurdle

– Failing a hurdle means the supplier cannot take part in the auction

– Quantify other responses financially

• Be clear what the winning bidder actually wins – winner takes all provides the best cost outcome




Real World Sourcing Scholarship

• £2500 towards any procurement based training

• Log on to the BravoSolution Education Network with the details you’ll receive tomorrow

• Complete the certification programme

• Check your ranking!

• The winner will be announced at the Sourcing Experts dinner on 19 December




THANK YOU!

Please feel free to contact me on

[email protected]


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