5 Ways to boost eAuction Savings

The fact that eAuctions deliver consistent and meaningful savings has been proven time and again since the late 1990's with savings rates averaging 9-12%.

Author
Date

Wednesday, January 16, 2019

The fact that eAuctions deliver consistent and meaningful savings has been proven time and again since the late 1990's with savings rates averaging 9-12%.

However, those savings do not "just happen" and results vary based on how events are run. In order to capture the best savings, you need to carefully select, prepare and execute your events.

Based on a review of the eAuction activity on Scanmarket's eSourcing platform across 300+ global companies, there are five key but frequently overlooked elements to maximizing your eAuction results:

More bidders = more savings
Choose the right auction format
Train bidders well
Provide a good target for bidders
Give bidders support during the event

1. More bidders = more savings. For reverse auctions, the number of bidders matter. Based on Scanmarket's analysis, the savings rate for reverse auctions increases by about 1 full point for each additional participating bidder added. Since about 75% of invited suppliers actually participate in the event, be sure to invite the right number of qualified bidders to your event. It is important to note that this holds true for reverse auctions but not necessarily other event types such as Dutch and Japanese (see #2 below). This also clearly shows the value of sourcing after new potential suppliers and/or working with your product specifications to widen the competition.

2. Choose the right auction format. eAuctions have come a long way since the one-line, price-only events that made headlines in the late 1990's. Now you have many event format options including Reverse, Japanese, Dutch, Factored and others. As one example, using Dutch or Japanese auctions when there is a smaller number of qualified bidders can in the right situations lead to significant improved results compared to traditional reverse auction formats. This is especially apparent when looking at auctions with five or fewer bidders. Doing that upfront analysis of the competitive situation in between your pre-qualified suppliers and knowing how many that actively will participate in the auction is therefore essential in defining and choosing the right strategy for your auction - in the end this could influence your savings rate with up to several points.

3. Train bidders well. It is common sense that bidders who are comfortable with the process and technology will be more active participants. Scanmarket's data shows that more active participants leads to better eAuction results as well. As the number of bids per line increases, so do the overall savings from the event. Based on the events managed by Scanmarket, there is a correlation between the amount of training time and supplier conditioning invested in the event and the results. The data clearly shows the value of spending that extra time upfront on preparing and training the supplier in order to maximize the result of your auction.

4. Provide a good target for bidders. By the time you get to an eAuction, you have already qualified the bidders or, perhaps, they are part of your existing supply base and are invited to numerous events. In the same way that you have "done your homework" on the bidders, let them do theirs when it comes to constructing their bidding strategy. Again the more the suppliers have been able to prepare for the auction and the more they understand the process the sharper on the price they will be:

Releasing specifications well in advance of the event
Conducting a review session(s) (via conference call or web meeting) prior to the event to condition the suppliers and clearly communicate the rules of the game etc.
Provide a structured communication process that guarantees all bidders have the same information

5. Be active during your auction. Active use of the messaging function drives bidder activity and savings. Based on Scanmarket's analysis of platform activity, 80% of all buyer messages during an event led to continued bidding. Buyer messaging provides not only encouragement but it also shows that you are involved and engaged in the negotiation. It is of course important to keep messages short, simple and well-thought. Defining the messaging strategy upfront, including a written policy, is key to success here.

Many of these best practices may seem like common sense but all too often, in the rush to get events "out the door", companies will not invest the time or resources necessary to get the best results. While these best practices contribute to better eAuction success, it is important to remember that good eSourcing starts with good sourcing. You still need to have good specifications, a competitive supply base, and a carefully selected category that will encourage supplier bidding.

For more information on this data or to learn more about how Scanmarket can help you achieve your business objectives, please visit us at www.scanmarket.com 

Scanmarket
Easy. Proven. Results.