Dave Harman, eSourcing Strategy Lead at Centrica, presented at eWorld London 2013 and shared Centria’s experience with M&A transition plans. In my opinion, the most impactful part of his presentation was how Centrica used auctions to initiate a smooth transition between the new company and parent company. Dave expressed that quick wins spring from the use of auctions, not only from a cost and immediate market feedback perspective, but also from a procurement perspective, introducing a standard methodology to use across multiple organizations. He also reviewed best practices associated with running auctions, which Centrica has successfully implemented through their Center of Excellence in procurement.
Dave shared how to implement a successful auction by following the six steps below:
Step 1: Initial Assessment Strategy with Category Manager
First and foremost, determine whether or not a good or service is appropriate to run through an auction, especially when transitioning an organization into using auctions as a procurement strategy. Consider whether or not spend is contractually available, if the volume is commercially attractive, if there is a competitive supply base, and if the buyer is willing to award the business through the process, among others.
Step 2: Decide on eAuction Model
Auctions should not be an afterthought, but rather a part of the strategy from the beginning. As a buyer, you should engage with suppliers during the initial stages so you set appropriate expectations to encourage a smooth, transparent process.
Step 3: Build eAuction
There are several strategies to the auction itself, including rules you may place on the event based on the type of market or category being sourced. Dave specifically discussed the use of a metabid formula, which is a way to place an adjustment on a supplier’s bid to factor in differences between suppliers, thus creating an arena where a supplier ranking is a true ranking.
Step 4: Hold Supplier Training
Supplier training is essential to a successful auction. Centrica holds a practice auction with suppliers and leaves it open for 48 hours after the training session to allow suppliers time to practice prior to participating. This practice allows for smooth bidding events with rare supplier issues.
Step 5: Run eAuction
When supplier training is a part of your process, the actual bidding event will be the easiest part of the process. You should receive immediate market feedback to aid in making quick award decisions.
Step 6: Post eAuction Analysis
Auctions often require post-bid analysis, especially when the category will not be single-sourced. Dave discussed the use of optimization analysis to “slice and dice” the information in different ways to quickly make informed decisions.
Dave summed up the presentation by mentioning that stakeholder education is the primary way to mitigate negative perceptions of the auction in order to maintain them as a successful part of Centrica’s strategy. By keeping stakeholders informed throughout the process (both the category management team and leadership team), you can ensure questions and skepticisms are addressed immediately and proactively.
Centrica is able to implement smooth M&A transition processes by including auctions as a key strategy. When an auction is executed properly as David discusses, it can augment a successful procurement strategy in a positive way.