Reverse auctions will continue to drive consistent results over time.

February 28th, 2013

So, what makes this process more than a one hit wonder that too many think it is?

Today’s post is from Ron Southard, CEO at SafeSourcing.

As spring training is now in full swing, let’s use a baseball analogy, you may not get the home runs and grand slams that you saw during your first and maybe second year implementations of this tool but with proper planning and execution you will at a minimum continue to beat market pricing. Think of it as singles, doubles and triples and sometimes a walk where you just hold onto what you already have.

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 increasing their wallet share with you over time. They may take your business at a loss in a down economy in order to drive cash flow to just as the song goes, keep on keeping on. They also will take actions during the next year or two to drive their internal costs down which will make your business more profitable to them. These circumstances means there is potentially more compression on the table the next time you go to market with their category. 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 need new sources of revenue. What’s the math look like? Last year your vendor invoiced you for $10M. This year they have to reduce to $8M in order to remain your vendor because others are willing to take the business at this price. The question to your vendor is, would you like to lose $2M or would you like to $8M?

There are many other benefits to running these RFQ’s over and over again. A few are , new product offerings with better features, new suppliers that you are not aware of, suppliers you strategically did not invite the 1st time (if you want to know why, give us a call), 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, one if you can manage it or you will be paying too much by contract expiration.

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

We all know that ball clubs that consistently hit singles and doubles game after game ultimately win more of those games. In fact a grand slam can’t happen unless there are already runners on base.  If you want to learn more about how to succeed year in and year out with this process, please contact a SafeSourcing customer services account manager.

We always appreciate your comments.

 

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