Online Reverse Auction Ethics – Part II

As a follow-up to Part I of unethical behavior during online auctions, I would like to point out a few other areas to watch out for to continue to ensure your organization’s success.

1) Internal Politics – What do I mean by this exactly? Basically, it means ensuring that every stakeholder is fully on board before initiating an online auction exercise. When you don’t have the complete buy-in of internal stakeholders, you risk sabotaging the event before it even starts. Some scenarios that could arise as a result of lack of buy-in from internal stakeholders:

  • Initiate online auction exercise with suppliers and end it half way through
  • Complete process up to preliminary bids and then call it off
  • Complete entire process, but do not follow through on results due to inability to implement results
  • “Privileged” communication with incumbent revealing that they don’t need to take the process seriously

Any of these scenarios will cause suppliers to question the validity of your internal processes, will give incumbents the upper hand as they know they never have to take your auctions seriously, will decrease the number of future interested participants, and will further detriment the effectiveness of e-sourcing as a negotiation tool for your organization.

2) Pre-auction negotiations with incumbents: Besides this not respecting the guideline that bidders will be treated equally, also consider here that if your incumbent is willing to significantly reduce their price in order to not go through with the auction, just imagine what the others can do during the live event.

3) Accepting offline quotes: it must be clearly stated that if a supplier wants to be considered for business, they must submit their prices online; otherwise it defeats the purpose of what you are using the tool for. However, in situations where a company flat out refuses to take part, but are a critical supplier for you, then consider creating bid submission documents that allow them to sign a faxed sheet with the best and final bid understanding that that those prices will be submitted into the auction on their behalf.

3) Post-auction price negotiation: unless explicitly stated in the RFQ, do not get in the habit of trying to further drive down prices after the online auction. The understanding from both parties is that all prices are legally binding, and the suppliers cannot try to increase their prices post-auction, and the buyer can’t try to decrease it. Remember that through the use of strategic pricing parameters (i.e. ceiling prices, starting prices, qualifications prices, etc…) you can protect yourself in the event that prices do not reach your target.

While there are many factors contributing to the success of an e-sourcing program, I strongly believe that ethics should be high on that list. It’s often taken for granted, and not given the full attention it deserves. It doesn’t take much time to create a set of internal guidelines and ensure that all parties comply. You will see, the benefits in the end will be worth it!

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