Still today, I frequently get asked questions about how to identify a category to execute a reverse auction. Many times, people are looking for “the answer” (eg, corrugated, office supplies, ICBMs, Space Shuttles) but it does not work that way. While there is no “answer”, there is a framework to think about and make educated decisions. These general rules will get you 90% of what you need in less then 60 seconds:
- Do we have a competitive supply base? Basically, do you have 3 or more equal suppliers that you trust and would do business with under the conditions proposed? This is really the basis for a much deeper issue of supply chain risk aversion and disruption.
- Do we have the ability to switch the business? You may not change vendors for a 2% delta in price but you need to have that flexibility. Things like vertical integration or tooling are important considerations. For instance, you just finished your Oracle ERP implementation…it is probably advisable for a switch to SAP to be brought up in a meeting first.
- What is the contract status? Are we at a point that we can strategically source this item?
- Do we have the specifications for the item or can it be retrieved from the vendor? Again, this is really a non-starter if you did not get past Item 1 or 2 because you would not have enough vendors and would be tightly bound to the supplier, any way. However, it is a critical issue that must be done to have a successful reverse auction.
I bet that took under a minute and you are now a qualified assessor of reverse auction viability. Congratulations – Class of 2006, go forth and prosper.