Hi there and welcome to my latest blog entry!
My name is Angeline Gregory, I am one of the Solution Value Advisory Directors covering EMEA/MEE, and I’d like to blog about some of the feedback I’ve experienced while encouraging customers to transition to Guided Sourcing.
Our team has been busy with a global campaign, targeting users of SAP Ariba ‘Classic’ Sourcing who haven't fully explored the potential benefits of Guided Sourcing.
One of the most common questions I’ve received from our customers is how to effectively conduct Auctions using Guided Sourcing.
Let me break this down in my blog post below:
Understanding Auctions with Guided Sourcing
In today's competitive business environment, procurement organizations are constantly seeking ways to optimize their sourcing processes. One effective method is through the use of Auctions, which can be categorized into various types. This blog will delve into the intricacies of the different Auction types, their benefits, and best practices for successful execution.
Types of Auctions
- Reverse Auctions:
- The most common type of Auction is where buyers buy goods/services and through a competition between suppliers to drive down the price
- Suppliers start with initial bids, typically from an RFx round then over the course of the Auction suppliers have the option to bid multiple times to win the business
- Auctions typically last for 30 mins however, this is dependent on the requirements/complexities – Auctions ‘can’ be automatically extended if bids continue to be received
- Forward Auctions:
Forward Auctions operate similar to Reverse Auctions however, instead of driving down the price which is typical for a Reverse Auction Forward Auctions increase the price – These are amazing for selling materials no longer required by customers, for example redundant IT equipment, scrap metal etc.
- Buyers (ie suppliers) have the option to submit multiple bids to purchase the goods
- Example categories are the sale of scrap metals, fleet, used IT equipment
- Dutch Auctions:
In a Dutch Auction in Ariba the customer sets a starting price, a decrement, and a time interval (one minute), and the bid price gradually goes down until participant takes the business or until time is up
- When a participant decides to bid on a lot then bidding ends immediately – there are no additional bids on that lot
- It is possible to have a Dutch forward Auction where the buyer sets an increment and the bid price gradually goes up until a participant takes the price.
- Japanese Auctions: In Japanese Auctions the buyer sets a starting price, a price increment, and a time interval. At each interval the price goes up and participants indicate if they can meet that price or not. Those participants that cannot meet the price are locked out.
Benefits of Auctions
- Cost Savings:
The competitive nature of Auctions encourages suppliers to offer their best prices, leading to significant cost savings for the organization. - Efficiency:
Auctions can drastically reduce the time required to complete the procurement process, making it more efficient. - Supplier Engagement:
Auctions provide an opportunity to engage with a wide range of suppliers, including those from different geographic locations and with varied capabilities. - Transparency:
Auctions promote transparency and fairness in the procurement process. All suppliers have equal access to the bidding process, and outcomes are determined based on objective criteria, reducing the potential for bias and favoritism. - Market Insights:
Auctions provide valuable data and insights into supplier performance, market trends, and pricing dynamics, helping procurement organizations make more informed decisions.
Best Practices for Successful Auctions
- Clear Objectives:
Define clear objectives, whether it's cost savings, supplier diversification, or other strategic goals. Clear objectives will help in evaluating the success of the Auction. - Supplier Pre-Qualification:
Ensure suppliers are pre-qualified and meet the necessary standards and requirements, we find qualification post-Auction can delay the award of business and can lead to unnecessary confusion. - Auction Format:
Choose the right type of Auction format. Reverse Auctions are the most common. - Communication:
Clearly communicate rules, timelines, and expectations to suppliers. Ensure all suppliers have a clear understanding of the Auction process and the criteria for evaluation. - Bid Evaluation Criteria:
Establish transparent criteria for selecting the winning bid. This can include factors such as price, quality, delivery schedule, and other contractual terms. - Technical Support:
Ensure technical support is available to both the procurement team and participating suppliers. - Legal and Compliance Considerations:
Ensure that the Auction process complies with all legal and regulatory requirements, including data privacy, antitrust laws, and any industry-specific regulations. - Post-Auction Negotiations:
Determine the process for post-Auction negotiations with the winning supplier(s). This can include finalizing contract terms and conditions, as well as discussing any additional requirements – Remember, an Auction will only secure the price, procurement negotiations are required to finalise the contract.
Conclusion
Auctions are a powerful tool for procurement organizations looking to optimize their sourcing processes. By understanding the different types of Auctions, their benefits, and best practices for execution, organizations can achieve significant cost savings, efficiency, and transparency in their procurement activities.
For more detailed insights and a demonstration of Guided Sourcing, feel free to access the following link
Thank you for reading my blog!!
Angeline Gregory
