Future of Sourcing - Bidding https://www.futureofsourcing.com/tags/bidding en Use eAuctions Instead of “3 Bids and a Buy” for Greater Savings https://www.futureofsourcing.com/use-eauctions-instead-of-3-bids-and-a-buy-for-greater-savings <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="https://www.futureofsourcing.com/sites/default/files/articles/eAuctions%20%281%29.png"><a href="https://www.futureofsourcing.com/sites/default/files/articles/eAuctions%20%281%29.png" title="Despite auctions being far more efficient than negotiating prices, to secure direct and indirect services and goods, they are entirely underused by multinationals. " class="colorbox" rel="gallery-node-1905-BVgCsWEchHE"><img typeof="foaf:Image" src="https://www.futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/eAuctions%20%281%29.png?itok=xzN2AkLl" width="624" height="325" alt="Despite auctions being far more efficient than negotiating prices, to secure direct and indirect services and goods, they are entirely underused by multinationals. " title="" /></a></div></div></div><div class="field field-name-field-related-news field-type-entityreference field-label-above"><div class="field-label">Related news:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/reconsidering-the-services-category-for-eauctions">Reconsidering the Services Category for eAuctions</a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>In late 2020, Robert Wilson and Paul Milgrom were awarded the Nobel Prize in Economics for breakthrough work on structuring auctions to deliver the best results for both the seller and buyer. Google, for instance, reinvented the advertising industry, which was based on face-to-face, closed-doors deal-making, with its programmatic, automated, real-time, largely auction-based digital platform. In doing so, Google grew exponentially by providing millions of small businesses with the ability to advertise cost-effectively.</p> <p>So, why aren&rsquo;t auctions used far more extensively by procurement?</p> <p>Why does procurement rely heavily on &ldquo;three bids and a buy&rdquo; to secure everything from raw materials to marketing services?</p> <h1>eAuctions for Procurement</h1> <p>Procurement leaders believe auctions will not help them reach their savings targets due to the &ldquo;winners curse,&rdquo; a phenomenon where a supplier overestimates how much they need to lower their bid in reverse auctions to win. This creates psychological resistance in suppliers to lower prices as they fear that they will end up unnecessarily cutting into their own margins. Moreover, there&rsquo;s a myth that auctions cannot be conducted for items below a certain price level, despite eBay disproving it 20 years ago.</p> <p>Which brings us back to our Nobel Prize-winning scientists who proved that a bidder &mdash; a supplier &mdash; will choose not to lower their bid for an item in order to avoid the &ldquo;winners-curse.&rdquo; However, if all participants were offered a level playing field in terms of information, they would be able to make continuous modest alterations to their bids to reach the optimal price of any item. In other words, our Nobel scientists discovered that auctions eliminate bias and increase transparency into competitor pricing, leading to higher savings for procurement</p> <p>Auctions provide the best way to drive savings for organizations in a way that is mutually beneficial for buyers as well as suppliers, and procurement is completely underusing them. It&rsquo;s a massive missed opportunity.</p> <h1>To replace &ldquo;three bids and a buy&rdquo; with auctions, procurement needs to:</h1> <ol> <li><strong>Select the right format: </strong>When focused on savings, use a Reverse English format. As suppliers continually place bids, additional pricing information is distributed among all bidders, driving the price lower and lower. Whereas when you&rsquo;re looking to establish multiple suppliers for a single category, use Reverse Japanese auctions since suppliers must indicate their willingness to continue participating after each round of lowered prices. This is as opposed to a Dutch auction where a winner is decided whenever a supplier accepts the price.</li> <li><strong>Remove the &ldquo;winners curse:&rdquo;</strong> Today, procurement negotiations decide the final price and terms after receiving quotes from bidders. Instead, with auctions, providing feedback to all suppliers about their price-competitiveness enables them to bid more aggressively. Additionally, during the auction itself, by providing unlimited bids while sharing real-time bidding information amongst participants, suppliers can compete without fear of under-bidding. Most importantly, the transparent nature of the auction, in contrast to negotiations, will eliminate any feeling of politics, favoritism, personal connections and bias that suppliers generally suspect.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li> <li><strong>Group items when the value of each item is low:</strong> When procuring low-value resources, such as translation services or low-volume chemicals, group similar items together to create lots, enabling suppliers to provide an overall lower value to a lot. Additionally, it makes it easier for suppliers to participate because they won&rsquo;t split their attention across too many items.</li> </ol> <p>Despite auctions being far more efficient than negotiating prices, to secure direct and indirect services and goods, they are entirely underused by multinationals. By using auctions, your suppliers will see competitors&rsquo; price ranges while procurement will eliminate bias to achieve saving targets and build stronger vendor relationships.</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/procurement" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Procurement</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/eauction" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">eAuction</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/bidding" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Bidding</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/supplier" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Supplier</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/indirect-services-0" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">indirect services</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Use eAuctions Instead of &amp;ldquo;3 Bids and a Buy&amp;rdquo; for Greater Savings - Future of Sourcing" addthis:url="https://www.futureofsourcing.com/use-eauctions-instead-of-3-bids-and-a-buy-for-greater-savings"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Thu, 07 Jan 2021 21:19:58 +0000 Prabhav Pattapurati 1905 at https://www.futureofsourcing.com https://www.futureofsourcing.com/use-eauctions-instead-of-3-bids-and-a-buy-for-greater-savings#comments Is it time for an eSourcing solution functionality reality check? https://www.futureofsourcing.com/is-it-time-for-an-esourcing-solution-functionality-reality-check <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="https://www.futureofsourcing.com/sites/default/files/articles/eSourcing_options.jpg"><a href="https://www.futureofsourcing.com/sites/default/files/articles/eSourcing_options.jpg" title="Is it time for an eSourcing solution functionality reality check? " class="colorbox" rel="gallery-node-1594-BVgCsWEchHE"><img typeof="foaf:Image" src="https://www.futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/eSourcing_options.jpg?itok=Mj5rGwy1" width="624" height="325" alt="Is it time for an eSourcing solution functionality reality check? " title="" /></a></div></div></div><div class="field field-name-field-intro field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <p>Forget the bells and whistles, focus on the features that your procurement team needs to get the job done.</p> </div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <div>As a rule of thumb, there is a list of 10 questions that every procurement team should ask at all solution provider demos. Some of them you&rsquo;d probably expect, like questions about integration and the administration of configuration settings. Others you might not have thought of, for instance asking to what degree the company &ldquo;takes their own medicine&rdquo; by using the technology themselves.&nbsp;</div> <div>&nbsp;</div> <div>This list of questions is based on experience in two specific roles: first as a procurement practitioner on a team tasked with selecting and implementing an eSourcing suite; and second, as a consultant at a procurement solution provider where the team was often called to participate in the sales process.&nbsp;</div> <div>&nbsp;</div> <div>It is safe to assume that most procurement professionals haven&rsquo;t had the experience of being on the sales side of a bid process in their current role. It is most interesting when your company wins the deal. Obviously, winning is more fun than not winning, but that&rsquo;s not it. When you go from prospect to partner, you get the opportunity to reflect on the selection process in the context of the priorities and maturity of your newly won customer.&nbsp;</div> <div>&nbsp;</div> <div>There are three areas of solution functionality that everyone demands, but which at least 90% of companies were not prepared to use.&nbsp;</div> <div>&nbsp;</div> <div> <h2>Optimization</h2> </div> <div>Companies regularly collect more information from suppliers than they absolutely need because this provides them with options. In theory, the more qualified options procurement has to present to the business, the more value they can create. Optimization automates the process of 1) calculating the cost and 2) ranking the value of different supplier proposals. Here&rsquo;s the thing &ndash; in order to benefit from optimization, you need to know all of the award constraints and be able to enter them in the system.&nbsp;</div> <div>&nbsp;</div> <div>It is also hugely helpful if you can score/rank the qualitative benefits of each supplier. Without this, procurement will be left with a nice neat ranking of suppliers by price &ndash; one that does not align with the business&rsquo; view of the category at all. It is much harder to articulate the basis of potential award scenarios with the specificity required for a system to understand them than you might think.&nbsp;</div> <div>&nbsp;</div> <div> <h2>Data Points</h2> </div> <div>&ldquo;How many data points can your system handle per project?&rdquo; It&rsquo;s a question that any competent provider should be able to answer right away. You can think of this as items * spec fields * bid fields * suppliers. The number balloons quickly in certain kinds of projects, reaching tens of thousands of data points that pose a challenge to import/export, analysis and optimization.&nbsp;</div> <div>&nbsp;</div> <div>Perfect examples include sourcing events for location-based services (floor washing, grease trap cleaning) and LTL freight (because of the number of lanes and suppliers involved). While data point scale is absolutely essential for certain kinds of projects, they are not usually the norm. Too much focus on this type of detail may lead to the selection of an overly expensive, overly complex system that will be next to unusable in the vast majority of sourcing projects.&nbsp;</div> <div>&nbsp;</div> <div> <h2>Complex Bidding</h2> </div> <div>One of the primary reasons most companies have for implementing eSourcing is to get their procurement teams away from spreadsheets for bidding and analysis. Given that, it is amazing how many companies will select and implement an eSourcing platform, only to attach a spreadsheet in the bidding section and ask suppliers to input one final number in a single bid field while submitting all of the bid detail in the spreadsheet!&nbsp;</div> <div>&nbsp;</div> <div>If procurement isn&rsquo;t skilled in the fine art of cost modeling &ndash; and able to create a cost model that reflects the need for standardization across bids as well as the flexibility to allow suppliers to move &ndash; you honestly don&rsquo;t need anything more than the most basic bid field functionality.&nbsp;</div> <div>&nbsp;</div> <div>Not to violate professional standards and name names, there are plenty of companies out there who chide prospective suppliers for not having expansive functionality even when they are nowhere near ready to use it. There is absolutely no harm in asking about the development roadmap or making sure the technology will grow with procurement as their learning curve progresses.&nbsp;</div> <div>&nbsp;</div> <div>That said, you&rsquo;re doing your team and your company a disservice if you are focused on a provider&rsquo;s ability to get you to the moon, when you&rsquo;re still getting comfortable leaving your front yard. Instead, define the functionality required by 80% of your company&rsquo;s sourcing projects and pick the best solution for addressing those.&nbsp;</div> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/technology" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Technology</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/esourcing" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">eSourcing</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/data" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Data</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/bidding" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Bidding</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/negotiation" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Negotiation</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/optimization" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Optimization</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Is it time for an eSourcing solution functionality reality check? - Future of Sourcing" addthis:url="https://www.futureofsourcing.com/is-it-time-for-an-esourcing-solution-functionality-reality-check"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Thu, 03 Oct 2019 20:38:04 +0000 Julien Nadaud 1594 at https://www.futureofsourcing.com https://www.futureofsourcing.com/is-it-time-for-an-esourcing-solution-functionality-reality-check#comments