Auctions are considered to be the best way to negotiate and achieve savings, provided these are run effectively. It dramatically reduces the time to negotiate the best commercials.
Below are some
of the tips for buyers/procurement managers:
- Have hungry/new competitive suppliers for healthy competition.
- Have the same T&Cs agreed with
all suppliers (payment terms, penalty terms etc.) before making them
participate in the auction. It is a best practice to share contract template as
part of the deck for RFQ. Suppliers who don’t agree to non-negotiable T&Cs
can be excluded at the RFQ stage itself. Different T&Cs make the comparison
complex and lead to confusion during in-life governance of the contract.
- Have limited line items in an auction so that suppliers can see all on one page w/o having to change/scroll pages. It shall not only make it easy for suppliers but would also lead to great results for buyers - Ideally 4-5 line items and surely not more than 10 line items
- Get technical/business buy-in on prospective suppliers before any auction to avoid hassles post auction. At times business refuse to assign business to most competitive supplier citing performance/technical reasons and L1 (most competitive partner) feels cheated for not getting business even after ranking at top in commercials. Ideally, suppliers which are ‘ok’ as per business should be the part of reverse auction. Auction is a transparent process and it sends wrong signal in market if L1 doesn’t get major pie of the business. It also triggers the thought in other suppliers minds that auctions are not that important to get any business which apparently means that the sanctity and effectiveness of auctions get compromised.
- Have a clear thought process behind deciding the minimum decrement and time for which auctions needs to run. 20-30 minutes with limited extensions of 2-3 minutes is a safe way to go.
Happy
to hear about the experiences and learning of other procurement managers.
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