A logical focal point for hosting a competitive reverse auction is to assemble your present suppliers that you hold in good standing for a particular category. These are suppliers from whom you have sourced products using traditional means in the past. In general the principal is the more suppliers that participate, the better your potential results will be. However this also requires some strategic thinking 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 type of continual compression that you are looking for. This is a significant reason why it is important to have access to the most robust supplier data possible. As an example; if you can only locate six local suppliers for a particular reverse auction, they will all most likely agree to participate the first time around. However consideration should be given as to what will encourage them to participate the next time and the time after that? Suppliers will almost never be the same size. As such the smaller vendors will most likely bid early during an event and then 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. Incumbent suppliers that re displaced as well as new suppliers that finish first or second in the bidding process will agree to participate again, but a lack of adequate competition will make the rerun auctions less successful.

The strategic questions should be; if we only have six suppliers available how many should we invite to participate? Should we invite them all? Every company will have differing opinions on this subject. When considering the future, do we want events or do we want continual process improvement that drives continuous savings? There are several possible scenarios you might consider. First, only invite four participants to the first event. This will create a competitive environment for your reverse auction. Let?s assume that in twelve months you want to repeat this auction and 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.

We look forward to and appreciate your comments.

We were speaking with a consultant this morning that asked us a group of questions from a company he was in the process of introducing us to. Two of the questions were related and are as follows.

1.?Does it make sense to reverse auction any of our core items?
2.?Does it ever make sense not to reverse auction?

Obviously our first conversation centered on what were considered to be core items for this company. This can change from company to company based on the specific industry they serve and understanding frequently used buzz words for that particular industry.

In the retail industry, products are generally broken down into two major groups or classifications which are products for resale and products not for resale. Core items can exist in both categories. An example of a not for resale product/category that a large retailer may consider to be core might be fuel. This is a regular annual expense item that is driven overall by the price of a barrel of oil that can vary widely and be purchased as part of an annual contract that can be tied to a price index such as OPIS. Additionally, fuel can be purchased using spot buys that can be made periodically during the year and are also tied to the same index. Both types of buys lend themselves very nicely to the reverse auction process.

For a manufacturer, a core product might include the raw materials used to manufacture their end user products. This might include metals, plastics, resins etc. All of these core products are also tied closely to a variety of indexes.

The key to using reverse auctions to source any product/category is the quality and availability of the products specification, the availability of alternative or new sources of supply wanting to bid for the business and the quality of the new product compared to what is being used today.

With the above issues covered and understanding that all other data normally considered during the standard procurement process are generally features of most quality e- negotiation tools; companies can be comfortable that any product or service that they use can be sourced using a reverse auction.

Typically when using a reveres auction element of an RFX suite, companies can save time, review more bids and compress pricing or avoid costs in an up market.

We appreciate and look forward to your comments.

We were speaking with a consultant this morning that asked us a group of questions from a company he was in the process of introducing us to. Two of the questions were related and are as follows.

1. Does it make sense to reverse auction any of our core items?
2. Does it ever make sense not to reverse auction?

Obviously our first conversation centered on what were considered to be core items for this company. This can change from company to company based on the specific industry they serve and understanding frequently used buzz words for that particular industry.

In the retail industry, products are generally broken down into two major groups or classifications which are products for resale and products not for resale. Core items can exist in both categories. An example of a not for resale product/category that a large retailer may consider to be core might be fuel. This is a regular annual expense item that is driven overall by the price of a barrel of oil that can vary widely and be purchased as part of an annual contract that can be tied to a price index such as OPIS. Additionally, fuel can be purchased using spot buys that can be made periodically during the year and are also tied to the same index. Both types of buys lend themselves very nicely to the reverse auction process.

For a manufacturer, a core product might include the raw materials used to manufacture their end user products. This might include metals, plastics, resins etc. All of these core products are also tied closely to a variety of indexes.

The key to using reverse auctions to source any product/category is the quality and availability of the products specification, the availability of alternative or new sources of supply wanting to bid for the business and the quality of the new product compared to what is being used today.

With the above issues covered and understanding that all other data normally considered during the standard procurement process are generally features of most quality e- negotiation tools; companies can be comfortable that any product or service that they use can be sourced using a reverse auction.

Typically when using a reveres auction element of an RFX suite, companies can save time, review more bids and compress pricing or avoid costs in an up market.

We appreciate and look forward to your comments.