Who says you can only auction widgets???

July 12th, 2007 at 03:57am Agatha Degasperi - Iasta Europe

Time and time again I hear people say that you can only really auction a commodity; something that is standard, simple – like a widget that doesn’t have too many service components. Well, if that’s the case then what have we been doing the past 10 years??

The European Leaders in Procurement magazine (Spring 2007 issue) had an article written by Bill Simpson (director of financial services managed accounts – Fujitsu Services) in which he addresses the topic of auctioning services (only from a sales perspective). This inspired me to help get the story straight. Can services be e-sourced?

Absolutely! As with any commodity the key considerations for deciding whether or not to auction a service are:

1. Is the spend interesting enough to attract vendors?
2. Can you define your requirements?
3. Is there sufficient competition in this market? We would be looking at a minimum of 3 here…

If you can say yes to these 3 questions, chances are very good that you can run a successful event. Where customers often run into trouble is with question 2 as they can’t really clearly define what their requirements are. When this happens, then naturally you run the risk of having quotes that are not comparable due to the discrepancy between the services that were actually quoted for. Needless to say, this will not make a successful auction.

Returning to Mr. Simpson’s article for just a moment, he makes a point about having the buying organization be upfront about their goals when auctioning a service. Is it going to be a partnership scenario where you expect innovation & continuous improvement plans, or is it going to be similar to what he calls a “commoditized service” where you will tell the vendor how the service is to be delivered? He argues that customers are losing out by trying to commoditize services (thereby making price the only important metric) by not letting suppliers define what would be the best value proposition for their organization. While I agree with his point, I would also add that this is not the case for all services. I think it’s critical for the buying organization to take control of their expenses by clearly defining what is needed, what is “nice to have” and what is a luxury. On the other hand, if you are unclear about the direction you are heading, you need input from potential suppliers, then consider different negotiation routes (RFP, Sealed Bids, etc…). On a final point, it is not just because you run an auction that suddenly the only metric is price. You can define that upfront by attributing the criteria for awarding business and defining which percentage will be based on price, which on the services proposal and consider adding live presentations as well. All of this can then be factored into a total cost assessment per vendor helping you determine who the best supplier is. Always think about what the impact will be to the organization and where the supplier can really add value.

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Entry Filed under: General, Reverse Auctions, Supply Management Best Practices, Technology / SaaS