Category Archives: Reverse Auctions
Greg Henkin Managing, Partner iXchange, has more than 30 years of experience in the insurance industry. He has held senior management positions in several major insurance brokerages, owned his own brokerage and risk management consulting firms, and now owns and operates the iXchange. In his experience, reverse auctions in the insurance space are most successful when the sourcing event follows these six steps: Establish goals and parameters. Agree on the timing and date of the auction. In addition, you should … More
As sourcing organizations mature, it becomes more and more challenging to deliver significant savings across well-sourced categories. However, it has been Paladin Associates’ experience that there continue to be opportunities in both direct and indirect categories. Recently a client engaged Paladin to lead the sourcing process for Flexible Intermediate Bulk Containers (FIBCs). While the process was not unusual, its rigor demonstrated efficiency, effectiveness and the capability to deliver not only savings, but to provide greater understanding of and continuity of … More
The use of reverse auctions has significantly reduced the costs of many commodities that corporations purchase. The “art” of spend management and Group Purchasing Organizations (GPO’s) using reverse auctions is becoming common among private equity firms. The principal focus of spend management is on goods and commodities. The successful application of reverse auctions to such corporate service “spend” categories as legal, accounting and insurance is relatively limited. A few large corporations have experimented with the use of reverse auctions for … More
It seems that there are still some misunderstandings in the marketplace about the place of reverse auctions in eSourcing. I’ve noticed that several procurement professionals are facing resistance from their internal stakeholders to using eSourcing platforms. This puzzled me, so I decided to put on my detective’s hat. In my investigation, I determined that many procurement professionals: • Use a rigorous sourcing process or “playbook” • Have a common platform that provides a centralized place for everyone to collaborate and gain visibility … More
Love it or hate it, but there is no denying that eSourcing has revolutionized the purchasing arena. Negotiations will never be the same. Strategic eSourcing initiatives, processes and technology bring clear benefits to companies by: • Speeding up the negotiation time. Time savings is one of the most significant benefits of using eSourcing. • Increasing transparency. Both companies and suppliers get real-time visibility into what should be considered fair market prices. • Levelling the playing field for all parties. Everyone receives the information … More
Which came first: the chicken or the egg? From Wikipedia, “To ancient philosophers, the question about the first chicken or egg also evoked the questions of how life and the universe in general began. Cultural references to the chicken and egg intend to point out the futility of identifying the first case of a circular cause and consequence.” For me, this question is so procurement. You might think the last thing I would consider when I am talking to my … More
by Dr. David Howie, Director, TPI Winning bidders in auctions often experience buyer’s remorse, a gnawing sense that they have paid too much for something that they don’t need and perhaps no longer want. Something similar can happen in reverse when a client selects the cheapest service provider in a competitive tender for outsourced services. For example, in today’s tough conditions, many clients are anxious to strike deals that shift fixed components of their cost base onto the provider. But … More
As a sourcing professional, my most difficult negotiations aren’t with suppliers but rather with internal customers. Based on conversations with my colleagues, that experience is not unusual. One measure of this challenge is “savings leakage” (savings negotiated but not realized). Aberdeen Group reports average leakage rates of 21% as Purchasing strives to implement its sourcing decisions. Best In Class companies experience about 14% leakage whereas All Others see 24% leakage (1). Small companies experience up to 40% savings leakage (2). … More
In a recent Friday Rant entitled “Reverse Auctions Have Become the Aero-Bars of Sourcing”, SpendMatters’ Jason Busch describes the all too frequent abuse of Reverse Auctions. He quotes David Clevenger, formerly of FreeMarkets, who notes that “the problem with reverse auctions may be the same as with any powerful weapon in the wrong hands”. A knife can be used for murder or for life-saving surgery. I believe there are at least two factors that contribute to abuse. I recall Stephen … More
We have been known to promote the usage of reverse auction in these parts. However, rarely have I had the opportunity to discuss the process from the first person. Recently, Iasta had the opportunity to manage and execute an e-auction from cradle to grave. Needless to say, we did not need much support, but it was pretty easy to get. The auction was managed directly by one of our IT Managers, who despite having never used SmartSource as a practitioner, … More
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 … More
There are many components to e-Auction success, including good strategies, best practices, and inscrutable ethics. However, this post is going to overview another set of good process that you can follow to make sure the auction runs smoothly, efficiently, and delivers on it’s expected benefits. Define Requirements and Goals As with every other step of the sourcing process, good requirements, along with clear goals, are key. Be sure to understand what the strategy is for lowering or controlling costs, for … More
Just when I thought information and discussion regarding reverse auctions had exited stage right, along comes Infosys with an incredible breakdown of reverse auction best practices. When I initially started reading it, I thought I would find a couple interesting stats about how companies use and benefit from auctions. The article certainly had that component, however, it went into far more detail about how to leverage strategy in the buyers best interest (eg, dramatically reduce supply disruption risk) and what … More
Many people often wonder (especially eSourcing newbies) what the criteria are for a good reverse auction sourcing event. Since billions and billions of spend are negotiated through reverse auction technology every year, these rules have been developed and refined over time. Honestly, I do not even know the origin of this list or any of the changes it may have gone through over time. I suspect this was some of the original FreeMarkets marketing collateral that could fill an Olympic … More
How many bidders do you need for an electronic auction? There are a variety of “expert” opinions on this question. Is it three, four, five? I have heard all of these recommendations. The correct answer is: at least two. But the actual number depends. I have experienced circumstances where two bidders were plenty. It was a sellers’ market. There was significant over capacity, and the two bidders were hungry. They fought for the business in a bidding war, and the … More
