Reverse auctions will drive consistent results over time.

December 22nd, 2011

So what makes this process more than a one hit wonder for any company?

To use a baseball analogy, you may not get the grand slams and homeruns typically seen during first year implementations of reverse auctions but with proper planning and execution you will at a minimum continue to beat market pricing. Think of it as singles, doubles and triples for the at bats after you have hit a home run.

In order for this to happen we have to understand how to conduct successful auctions in today’s business world and it is not the same old same old where the low bid always wins. The number one job of any business is to drive bottom line profitability. Because of this, companies that win your business during an E-RFX process need to make the business they have just won as profitable as possible. They may take your business during an auction as a loss leader in the hopes of selling you more volume at a lower margin or selling other products to you. They may take your business at a loss in a down economy to drive cash flow in order to just keep going. They also will take actions during the next year or two to drive their internal costs down. All of these circumstances and more mean that there is potentially more compression on the table the next time around. The why is actually pretty simple? Your new supplier wants to keep the business and the relationship, your old supplier wants their business back and other suppliers want new accounts.

There are many other benefits to running these auctions again and again. New products offerings with better features, new suppliers that you are not aware of, suppliers you strategically did not invite the 1st time, existing products with new technologies and quality improvements to name a few. To support this, don’t sign contracts for periods of longer than two years or you will be paying too much by contracts end.

If your e-procurement solutions provider knows what they are doing, reverse auctions can and should become a long term tool in your procurement tool box.

We all know that the consistent hitting of singles and doubles wins more games. In fact a grand slam can’t happen unless there are already runners on base.  If you want to hear more about how to succeed year in and year out with this process, please contact SafeSourcing.

We always appreciate your comments.

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