Firstly, why an auction? We never ran auctions offline. Imagine a world where all your suppliers gather in the room whilst you (the buyer) act as auctioneer and award business to the lowest bidder. Never happened.

Now a negotiation – they happen all the time offline and maybe we can improve them tremendously by doing them online without resorting to an auction environment.

What if the stage after the RFP was not an eAuction but an eNegotiation?

We should keep some principles of an eauction:

Pricing submitted electronically

Suppliers see where they sit in the order

But we should change some:

Negotiations take place over an extended period – three days for example

Over this time the amount of communication should be increased (not limited). This is where the skills of the buyer are deployed to help suppliers find the lowest price that they are comfortable with.

However extending the period of price bidding should reduce the frantic auction like activity. (and gamesmanship often with limited number of suppliers)

Other non-price elements can be collaborated on such that various scenarios can be run in collaboration between the buyer and supplier. This should allow all the key elements of the contract (services, SLAs, productivity improvements, RPI, indemnity, acceptance/defect periods, termination, exit management etc etc) to be tailored by the supplier in conjunction with the pricing.

Buyers should be able to close the negotiation when they are happy, this can be done with no notice to the suppliers to avoid suppliers holding back their ‘final price’ until the last minute.

What do you think? What else would you change or add?

http://www.ariba.com/supplywatch/article.cfm?articleid=64&category_id=9

Whilst this is a well written and useful article which lays out a very logical argument in favour of eauctions, I can’t help feeling that it misses a crucial point.

If ‘eauction’ is a dirty word then it is very difficult to change it no matter what the logic. Once this principle is embedded in the minds of stakeholders and suppliers then they generally don’t have the time or inclination to change it. I think we have reached that point and need to find another way round it.

But what to do? I guess we have a few options:

1. Do nothing accept the situation and try to convert people slowly but surely through argument and experience

2. Change the name of an eauction, I think ‘auction’ has a negative connotation and if it was rebranded then we might be able to start over fresh. How about e-negotiation? Everyone expects a negotiation and doing it electronically would surely be a good idea?

3. Change the experience and the name. Is this an opportunity to change the experience as well. People will surely see through a rebrand? It appears to me that most eauction platforms are very similar and rely heavily on the experience of the ‘event’ however this may be great for the buyer but the supplier rarely sees it that way. Can we redesign the whole experience to be more supplier friendly. Keep the openness and competitiveness but make it feel less like an auction.

I sense that there is a real opportunity here for the next wave of innovation in electronic sourcing software.

The business engages us too late in process:

Get out of the process, if all you do is sit in a process and slow it down then no wonder they try to avoid you. Stop moaning about it. You need to get out of the process, remove procurement from the critical path, make it easy for the business to comply and get on with what they want to do.

£1 saved by procurement is £1 added to the profit:

This may be true in theory. But theory tells me that if I spend £200m a year and I stop buying entirely then I can save £200m a year. I doubt whether the business would be making an extra £200m, they would be out of business. It’s not true and we need to look at total value added by our suppliers and to keep improving it.

It would be better if I had it all under control, we need more control:

Better for who? Better for procurement certainly but would it really be better for the business, go and ask them. What they need is procurement to help them to deliver their objectives, this may be cost reduction through better control in some areas but I doubt it is the only thing they need.

We are focussed on VFM and not on lowest cost:

Whenever I hear this (and I hear it a lot) I want to check on what basis they are paid. I bet their management are looking for savings and this drives a focus on lowest cost. Buyers want to believe in vfm but they rarely get past lowest cost. Of course, they are right to believe in vfm, it’s just that their objectives rarely reflect it.

Our tender process is fair and transparent:

No it isn’t. Like all human interactions it is biased. Sourcing decisions are nearly always based on relationships to some extent and relationships are subjective not objective. There may be some processes that are fairer than others but find me a buyer who happily buys from a sales person that he dislikes and you will find that they can’t wait to move the business.



I have always intuitively preferred an open and collaborative approach but the question is ‘is that in the best interests of my organisation?’

How can we prove or disprove that.

I would like to see any research that examines any correlation and any cause and effect analysis.

Here’s some of the similarities that I see:

Selection
With both employees and suppliers, we go through a selection process, this normally involves researching the market and identifying candidates, a request for them to make a paper based submission and face to face meetings.

We take a shortlist and decide who we most want to work with based on a number of factors:
- Experience and skills
- Whether we can afford them
- Cultural fit

Contract
We hope that this selection process leads to a long and beneficial relationship between the two parties and we put in place agreements that describe what is expected of them and what we will pay them in return.

Performance Managment
Once we have them working for us, we monitor their performance:
Are they exceeding our expectations?
Do they need further guidance to help them perform?
Are they ready for more responsibility in return for more money?

It seems to me that Procurement would be wise to look to our HR friends and see that the focus is not always on recruitment but also in managing the talent we already have and getting the best we can from it.

Wouldn’t it be great if we could see these connections? It would be really useful to see who are the most connected suppliers, who our senior managers are most connected with, which well connected suppliers are not well connected to Procurement etc.

I am guessing that the sort of technology that will allow us to visualise these connections is starting to appear.

At the simplest level I am sure from things like email records we could see which external domains are the most emailed.

We could combine that with the most called phone numbers from landlines and mobiles.

Combine that data with social networks being built on LinkedIn / Facebook etc and we are starting to see our network and we can use this to tailor how we manage our relationships.

I wonder if this sort of technology is being used on the sales side in CRM?

Is it a deskilling of the purchasing process? Handing the tools to non-qualified practitioners?

Is it the move to a connection based transaction? Not about who you know but the tools that you deploy to find suppliers?

Is it a move to many more suppliers for most categories with very robust tendering tactics and a few select partners for a few categories?

I think it could be all of these things. What do you think?