SCM Insights
March 10, 2020

Optimize your procurement with online auctions

Matching themes: auction, Sourcing

An online auction lets you easily find the supplier with the best conditions in terms of price, product quality, delivery reliabilty, concept strength and more
An online auction lets you easily find the supplier with the best conditions in terms of price, product quality, delivery reliabilty, concept strength and more

Buyers in the manufacturing industry face a variety of challenges, such as volatile markets, high competitive pressure and ever shorter product cycles – catchword time-to-market – to name a few. Adding to that, manufacturing companies primarily source production components, placing high demands on quality and delivery time. But also the so-called indirect material offers a great potential for optimization. Many are asking how to optimize the entire purchasing process in such times. A promising approach is online auctions.

Find the supplier with the best terms and conditions

An online auction can help finding a suitable supplier who best meets the desired conditions. Suppliers submit binding bids in real-time via the SupplyOn platform. The system automatically awards the contract to the best supplier based on previously defined criteria. To consider further selection criteria in addition to price, such as delivery reliability, product quality or concept strength, these criteria are assigned a monetary value in advance. The auctioneer can track and compare the bids online and evaluate them after the auction has ended.

Thus the entire awarding process is transparently documented, traceable and tamper-proof. The clear, previously defined set of rules also ensures suppliers an objective awarding of contracts by the auctioning company.

The selection of the appropriate auction rule and awarding method is particularly important in auctions. Here, SupplyOn’s experts can advise and support the buyer with their 20 years of experience in the form of a so-called Managed Auction. The consultation begins with an initial meeting to clarify the initial situation, the objectives and the criteria for the award. It considers the market situation (bidder market vs. buyer’s market?) as well as the internal situation of the customer (how can the internal stakeholders be optimally integrated to contribute to the auction result?). After a detailed analysis, SupplyOn makes a recommendation as to the exact auction strategy – i.e. internal requirements, auction format and auction procedure. These factors are essential; they directly influence the success of an auction.

Once the auction strategy is selected, SupplyOn prepares the auction in the system. In this context, test auctions are conducted with suppliers and they are familiarized with the software before the official auction starts. During the auction, SupplyOn monitors the progress of the auction and makes recommendations if necessary. Once the auction is over, a comprehensive analysis is carried out, the findings of which can be incorporated into future auctions.

How to ensure the success of an online auction

A successful auction has a high auction dynamic. Therefore it is important to motivate suppliers to make attractive bids. It is important to achieve a certain balance. To ensure this, you need negotiating skills as well as expertise, which only comes with time and experience.

The degree of transparency, for example, can influence motivation. Thus, price auctions are very transparent, where the best bid is anonymously visible to all participants of the auction. In the so-called traffic light auction, transparency is created by the positioning of the bidders: The best bid is displayed in green, all other bidders can see how far they are from the best bid by means of a yellow or red traffic light. The bidders want to keep up and optimize their bids accordingly. In addition to the traffic light auction, the Dutch Auction is also in vogue, where the price level rises at certain time intervals. The bidder who first confirms a new price level wins and ends the auction simultaneously. This auction format is particularly popular when competition is intense.

Benefits of an online auction

The procurement process becomes more efficient overall. Vendor bids no longer have to be compared manually in a time-consuming process. Clearly defined quotation structures and templates for evaluations speed up the entire request and quotation process and reduce the purchaser’s overall effort. After a comprehensive preparation of the auction, the actual negotiation period is significantly shorter. Buyers save even more time if they conduct several price negotiations at the same time.

The clear, pre-defined awarding procedure eliminates internal coordination loops in the awarding process. At the same time, it prevents the buyer from being denied approval of a negotiated result, thus weakening his or her negotiating position.

The neutrality of an online auction allows participants to concentrate on the essentials. There is no emotional influence through gestures or facial expressions. This neutral negotiation method and the same – and therefore fair – competitive situation for all suppliers can save an average of ten percent of procurement costs. The selection of the right supplier is crucial for buyers as it is a key factor for both the success and the competitiveness of a business.

Korbinian Reng

Vice President Portfolio Strategy and Marketing

In portfolio management, we are looking ahead which solutions tomorrow’s world will require and how our customers will work with them.
New and intelligent technologies, global platforms and complete connectivity across supply chains and down on machine level will fundamentally change how we manage supply chains.
I find it extremely exciting to work on solutions with our customers and innovation partners that will ensure our joint continued success in tomorrow's global competition.

Besides those future oriented topics, we also take a very pragmatic view on how we can better solve today's challenges. Usually, it only takes a few adjustments or a new approach to better master the daily business challenges with existing ideas and tools.

I look forward to exchanging ideas and experiences with you!

Besides the issues of the future, we also take a very pragmatic view on how we can better solve today's challenges. Usually, it only takes a few adjustments or a new approach to better master the daily business challenges with existing ideas and tools.

I look forward to exchanging ideas and experiences with you!

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