If you wish to host a successful reverse auction a robust supplier database is an absolute must if you wish to encourage competitive bidding.
Continuing from Part I of II Is critical thinking in supplier selection a key to quality and sustainable retail reverse auctions?
The following scenario offers one example as to how the careful management of your suppliers and a little strategic thinking can drive the type of results you desire as well as a long term sustainable process.
Suppliers will almost always not be of the same size. This does not mean however that they are not of the same quality. Smaller vendors that have accepted your invitation will most likely bid early during your event and then drop out after the early rounds. These suppliers will most likely not agree to participate in the future as they consider their chances of winning the business unrealistic. This too is manageable however back to our first premise. Suppliers that finish first or second or your incumbent that may have been replaced will in most cases agree to participate again, but a lack of new competition will make the auctions less successful.
Thinking more strategically, an apparently logical question might be… If we only have six suppliers available how many should we invite to participate the first time and is more always better over the long run? Should we invite them all? Every company will answer this question differently. When considering the future, do we want successful early events or would we like a continual process improvement that drives continuous savings?
There are several possible solutions to consider. One scenario might be to only invite four participants to your first event. This will create a competitive environment for your reverse auction. After all it only takes two suppliers both interested in your business to drive quality results. Now back to our story. Let’s make the assumption that in twelve months or in the next purchasing cycle when you wish to repeat this auction that the two largest suppliers from the previous event agree to return. You could now invite supplier’s number five and six that were not included in the original auction. You have now created a competitive auction for the second year or purchasing cycle. An additional thought might be to not invite all of the largest suppliers to your first reverse 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.
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