Auctions have been delivering significant and consistent savings since the late 90's.
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 Source-to-Contract platform across 350+ global companies, there are five key elements to maximizing your eAuction results that are often overlooked:
- More bidders equals 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 equals more savings.
For reverse auctions, the number of bidders matter. Based on Scanmarket's analysis, the savings rate for reverse auctions increase by just over 1% for each additional participating bidder (up to the cut-off point of 8). 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 eAuctions.
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 and others. For example, Dutch or Japanese auctions can lead to significant improved results compared to traditional reverse auction formats when there is a smaller number of qualified bidders. This is especially apparent in auctions with five or fewer bidders. To choose the right strategy for your eAuction, do upfront analysis of the competitive situation in between your pre-qualified suppliers, and know how many will participate. In the end, this could influence your savings rate significantly.
3. Train bidders well.
Bidders who are comfortable with the process and technology will be more active participants. Scanmarket's data shows that more active participants lead to better Auction results as well. As the number of bids per line increases, so do 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.
Additional read: eSourcing Upside Down: Events from Suppliers' Perspective.
4. Provide a good target for bidders.
By the time you get to an eAuction, you have already qualified the bidders, or they are part of your existing supply base and 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. The more suppliers have been able to prepare for the auction, the sharper on price they will be by:
- Releasing specifications well in advance of the event.
- Conducting a review session prior to the event to condition the suppliers and communicate the rules.
- Providing 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 in an event led to continued bidding. Buyer messaging provides encouragement and shows that you are engaged in the negotiation. It is important to keep messages short and simple, and define the messaging strategy upfront with a written policy statement.
Additional read: Get our latest eAuctions Statistics Report
Many of these best practices may seem like common sense, but in the rush to get events out the door, some 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.