Maximizing Success from eAuctions

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Maximizing Success From eAuctions

Spend Matters UK/Europe

Maximizing Success from eAuctions

Guy Allen November 12th 2014


Introduction

The Real World Sourcing Series 2014 is a series of sessions covering hot topics for procurement professionals.

The Real World Sourcing Series is promoted and supported by Tejari, and developed by Peter Smith (Spend Matters) and Guy Allen (Real World Sourcing Ltd.)

Guy Allen started his procurement career with Ford Motor Company, moving through IBM, SmithKline Beecham and GSK , becoming CPO for Abbey National and VP Global Sourcing at Fujitsu before joining 4C as a Managing Partner. Guy has since left 4C and started his own consultancy, Real World Sourcing Limited.




Agenda

1. What is an eAuction?

2. A Short History

3. Determining Suitability for eAuction

4. Overcoming Internal Resistance

5. Planning and Setting up the Auction

6. Benefits

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







Some Major Successes

• Significant savings – 8-75% reductions in costs

• Helped to shift Paradigms

• Wide range of categories – Legal

– Construction

– Shop Front Signage

– Point of Sale Refrigeration

– Consultancy

– Marketing Agencies

Car Hire

Promo Items Freight

Hotels

Glass Bottles

Electricity

Professional Services

Office Furniture

Caffeine

Capsules

Malted Barley

1999 2000




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




1998 - SmithKline Beecham amongst the first to run eAuctions

2000 - eAuctions start to be on conference agendas

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

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




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

BUT

• These organizations are the exception

• In general eAuctions are:

• Not widely used

• Where used, they are ineffective




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 50AED up to 400AED, 10AED thereafter

• Payment to be made at end of session

• A500AED will be handed over once payment is made

http://www.google.ae/url?sa=i&rct=j&q=500+aed&source=images&cd=&cad=rja&docid=MWDJDORksvav_M&tbnid=hGhX3EdqTpjbRM:&ved=0CAUQjRw&url=http://www.mypivots.com/dictionary/definition/516/united-arab-emirates-dirham-aed&ei=hoitUbW_O437rAe55oFY&bvm=bv.47244034,d.bmk&psig=AFQjCNE60Y5icZ-JA0CoFI0OY8Kb60RM2g&ust=1370413570862755




Resistance

AED Target Spend

Sup

pliers

Sources of Resistance




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




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 500AED is up For Grabs

• Increments of 50AED up to 400AED, 10AED thereafter

• Payment to be made at end of session

• 500AED will be handed over once payment is made

http://www.google.ae/url?sa=i&rct=j&q=500+aed&source=images&cd=&cad=rja&docid=MWDJDORksvav_M&tbnid=hGhX3EdqTpjbRM:&ved=0CAUQjRw&url=http://www.mypivots.com/dictionary/definition/516/united-arab-emirates-dirham-aed&ei=hoitUbW_O437rAe55oFY&bvm=bv.47244034,d.bmk&psig=AFQjCNE60Y5icZ-JA0CoFI0OY8Kb60RM2g&ust=1370413570862755




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’




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




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




What you risk losing by running eAuctions

• Collaboration on jointly developed products and services

• Innovation

• Market Informed Sourcing




• 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

• Assign 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

• 10,000AED towards any procurement based training

• You will receive an email with your Tejari Education Network login details

• Complete the online certification programme

• Answer as many questions right as possible

• The top 10 scorers will be invited to the Awards dinner

• The winner will be announced at the dinner!




THANK YOU!

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