Is critical thinking in supplier selection a key to quality reverse auctions? You bet!

June 5th, 2008

If you wish to host a successful reverse auction a robust supplier database is key to encouraging competitive bidding.

If you wish to host a successful reverse auction a robust supplier database is key to encouraging competitive bidding. A logical focal point for hosting a competitive auction is to assemble all of your present vendors for a particular category that you hold in good standing. These are suppliers from whom you have sourced products using traditional means in the past. In general the principal is the more vendors or suppliers that participate, the better your potential results. This however also requires 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. This is a critical reason why it is important to have the most robust supplier data possible available for your review. If you can only find six local suppliers for a particular auction, they will all most likely agree to participate the first time. However a key issue to consider is what will encourage them to participate the next time and 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. Suppliers that finish first or second or incumbents that are displaced will agree to participate again, but lack of competition will make the auctions 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 auction 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 auction. 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.

I look forward to your comments.


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