Brunswick Corporation’s e-Auction Best Practices

At EyeForProcurement’s recent Technology for Procurement Forum held in San Francisco, Art Laszlo, Director of Strategic Sourcing for Brunswick Corporation, gave a presenation on Effective bidding, common pitfalls, and proper approaches to e-auctions. This was a good presentation, and one who’s content you know was worth it’s weight at least in silver since Brunswick Corporation was featured as one of the case studies in Aberdeen’s recent Advanced Sourcing and Negotiation Benchmark Report.

In his presentation, Art covered the benefits of auctions, strategies to avoid the pitfalls, ethics, and the benefits to suppliesr. Nothing you haven’t heard before if you’re a regular reader of eSourcing Forum or Sourcing Innovation, but it did a great job of tying everything together. In brief, here are the highlights of Art’s presentation:

Benefits to Buyers

  • removes the human factor from price negotiation
    not all buyers are good negotiators, and, by definition, only
    a handful of buyers can be selected as your best negotiators
  • higher average cost reduction
    especially when compared to a basic 3-bids-and-a-buy RFx process
  • increased efficiency and price transparency
    what used to take months can now be done in a couple of weeks
  • assists in the identification of the “best total cost” supplier
    as you can also track “bids” on delivery terms and conditions
  • a foundation for supplier relationship development
    not only are they open and fair (done right and ethically), but
    they require a great deal of communication up front and post auction
    (including to losing suppliers) to get right

Avoiding the Pitfalls

  • select items that exist in a naturally competitive environment
    if you only have a couple of sources, go for supplier development instead
  • select an item where the contract is ending
    bidders don’t want to win business for one or two years down the road; but more importantly, make sure you have no (other) contracts in place before advertising an auction
  • if you invite new suppliers, have the ability to switch
    if you have a long-term contract with an existing supplier, or the costs with switching are too high, you don’t have the right conditions for an auction
  • clear, complete, and well defined specifications
    since you need to be able to award the business to the winner
  • identification of relevant non-price factors
    this could disqualify some suppliers and indicate delivery terms that you need to track or have suppliers bid on
  • intend to award the business!
    not only is it unethical to hold an auction unless you intend to award the business, but if you get a reputation for not following through, you’ll have no suppliers bid next time

Ethics

  • clearly communicate your intentions, the process, and your
    ultimate goal
    if you just need to reduce cost, and you’re honest, suppliers will respect that
  • do not use auctions for benchmarking or price discovery
    suppliers don’t want to be be used solely as a tool to beat down an incumbent
  • award must be to a supplier in the auction
    it’s really unethical to award to a supplier who didn’t bid but then struck a deal after the auction closed
  • set realistic starting prices
    if raw material prices haven’t dropped, asking for a starting price that’s 15% lower is not reasonable
  • allow adequate time to train and support the suppliers
    especially right before the auction
  • do not allow for after-the-fact negotiations
    in fact, if a supplier tries to negotiate after the fact, they should immediately be disqualified
  • properly qualify all suppliers pre-auction
    you must be able to award to all winning suppliers
  • contact ALL participants after the auction ends
    especially the losing ones – taking just 5 to 10 minutes to explain why they lost goes a long way – and might help them shape up to provide you better bids and service the next time they are invited to a bid

Supplier Benefits

  • it’s a fair and competitive bidding environment
    everyone has an equal chance of winning
  • more efficient process
    they’ll have their answer quickly, and no paper to fuss with
  • increased business opportunities
    they could have more opportunities than they would otherwise
  • collaborative bidding environment
    they can ask questions, and get answers
  • even if they lose, they still get good information
    they can see what the market is bidding, and find out why they
    didn’t win (if you follow the ethics above)
  • open processes require trust
    even if they lose, they can get the information they need to
    potentially win your business in the future

Again, even though most of this should not be new to you, it’s a great all-inclusive high-level overview on how to succeed in an e-Auction!

Still quiet here.sas

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