Q&A with Tony Poshek—Auction Strategies for Suppliers -Part 2

April 6th, 2006 at 08:36am David Bush - Iasta

Lisa: How should suppliers think about their bid strategy prior to the event date?
Tony: My advice to all suppliers is to come prepared. By that, I mean that every supplier needs to know their drop dead walk away price. They may not submit it but they need to know it. But let me digress for a moment. I’d like to discuss what I call “reverse auction dynamics”. Whether a supplier decides to take a bid strategy of ‘early and often’ or ‘drop- the-market” with a few minutes to spare, there are certain dynamics that always appear. Most markets tend to start out as a horizontal line from left to right with a slight downward slope. Somewhere between half-way and two thirds of the way through an event, the slope tends to become steeper moving toward a vertical direction and in the last seconds, begins to take on more of a horizontal appearance. What this tells us is that there really is no wizardry involved with when, how often or how much a supplier should bid during an event. All events sort of look the same way.

Of course the fewer the number of suppliers, the greater any one supplier’s chance of being the winning bidder. If you are trying to get yourself noticed by the buyer because these are the types of parts that fit your company’s core competencies or your boss told you this is the type of work you ought to be doing more of, you might want to consider bidding very aggressively. If this is less strategic to you, you might only slightly decrease your price. All suppliers would serve themselves well if they can honestly look at themselves through the eyes of the customer. Has the supplier done business before with this buyer? If not, how will the supplier ‘get noticed’? Some suppliers who may have some type of relationship with the buyer might know that the buyer has some concerns about their quality, for example. Knowing this, if a supplier wants this piece of business, the supplier should try to differentiate on price. The exact opposite is also true. If the supplier knows that the buyer has had quality concerns, the supplier might not have to be as aggressive on price.

Lisa: How do you coach suppliers to participate in online auctions if they suspect that the buyer is actually only trying to lower the price from the incumbent?
Tony: There is a cost both in time and dollars for a buyer to go through an online process. Most small to mid-sized firms would likely not undertake the effort if they were just hoping to achieve a few percentage point savings. Switching costs do become a factor, however, and have to be pre-determined. While obviously a reduction in cost from the incumbent would be happily received by the buyer, the buyer will likely not go through the entire process unless they were serious about potentially switching suppliers.

Interview conducted by Lisa Reisman, who owns and operates Aptium Global - a direct materials consultant group in Chicago.

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Entry Filed under: General, Interviews, Reverse Auctions, Suppliers, Supply Management Best Practices