If you want a sustainable e-negotiation program some critical thinking is required.

March 19th, 2009

Hosting successful e-negotiation events that are sustainable requires a large and robust supplier database as well as some strategic and critical thinking if you want to encourage an ongoing competitive environment.

A client recently asked me why a large suppliers database is important to creating a sustainable e-negotiation program and what else would help ensure the process is sustainable?

A logical focal point for hosting a competitive e-negotiation event is to assemble all of your present suppliers for a particular category who are held in good standing. These are suppliers from whom you have sourced products using traditional means in the past.

In general the principal is that the more vendors or suppliers that agree to participate in the e-negotiation event; the better your potential results. This however requires some strategic thought because you are beginning a process that you want to use on a recurring basis. As such inviting the same suppliers again and again may seem to make sense, but may not encourage the results you are looking for whether it is shorter delivery times, better quality products, better pricing or all of the aformentioned. This is a critical reason why it is important to have the most robust supplier data possible available for your regular review. If you can only find six local suppliers for a particular auction, they will all most likely agree to participate the first time around. However a key issue to consider is what will encourage them to participate the next time and again after that? Suppliers will almost always not be the same size. As such the smaller vendors will most likely bid early and drop out after the early rounds. These suppliers will most likely not agree to compete in the future as they consider their chance of winning the business unrealistic. There are however ways around this if you are creative. The suppliers that finish first or second or incumbents that are displaced will always agree to participate again, but lack of competition from new souruces of supply will make the e-negotiation evenrs less successful.

A logical question would then be. If we only have six suppliers available; how many should we invite to participate? Should we invite them all? Every company will answer this question differently. When considering the future, do we want events or do we want continual process improvement that drives continuous savings?

There are several possible solutions to consider. First, only invite four participants to begin with. This will create a competitive environment for your auction. Let’s assume that in twelve months when you repeat this e-negotiation event that the two largest suppliers agree to return. You could now invite supplier’s number five and six that were not included in the original event. You have now created a competitive auction for the second year or cycle. A second thought might be to not invite all of the largest suppliers to your first auction, in order to manage the quality of your suppliers for future auctions. This type of critical thinking supports continual process improvement in e-procurement implementations.

We look forward to and appreciate your comments.

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