Let’s face it: Reverse Auctions have acquired a bit of a bad reputation. But done right, reverse auctions have the ability to be the most potent procurement power play out there.
Over a decade ago, Purchasing’s Annual Benchmark E-Sourcing Survey showed only 31% of respondents were using reverse auctions. Today, adoption of reverse auctions is rising, although there still exists some hesitation among sourcing teams.
But why the apprehension? In the past, these auctions were used as an aggressive, price-over-value negotiation tactic. And, given their complexity, only the largest organizations could support them. In fact, in the 1990s companies had to set up ‘war rooms’ for their auctions, and these were often supported through expensive consulting engagements. As a result, stakeholders from all parts of the business, not just procurement and IT, started looking elsewhere for bidding strategies. When you combine the effort of these events with their reputation as an intimidation tactic, it’s no surprise why many firms concluded that taking a “lowest bidder wins” approach wasn’t worth putting a quality supplier relationship at risk.
Reverse Auctions: A Key Technique to Drive Savings and Improve Supplier Engagement
But with the recent rise of “strategic sourcing,” more forward-thinking companies are returning to reverse auctions as a valuable technique to optimize savings and improve supplier engagement at the same time. According to a recent Spend Matters article, “online reverse auctions have been increasing in popularity, especially among emerging sourcing, procurement, and finance leaders.” What’s driving this trend? Simply put, alignment with modern sourcing and a new focus on supplier engagement clears the path for heightened collaboration and visibility. Which, in turn, allows all parties involved to run a smooth and successful reverse auction.
The good news is that there’s a clear business case for rethinking your team’s approach to reverse auctions. In the past year, Scout customers have run thousands of successful multi-supplier auctions, and on average they’re reporting 12 – 18% savings on those purchases. Whether you’re sourcing $10,000 or $10,000,000 worth of goods, that’s a significant impact to your bottom line. And when ease, collaboration, and visibility are part of the equation, both buyers and suppliers can reap the benefits of a successful reverse auction.
Long gone are the days of stifled processes; teams who have adopted more modern, flexible, and automated platforms now have the power to strengthen their buyer/supplier relationships. When fitted with these stronger foundations, reverse auctions can pave the way for both procurement professionals and suppliers to:
- Increase visibility into the reverse auction process
- Heighten collaboration between both parties
- Illuminate a once-upon-a-time arcane, frustrating, “black-box” process
- Simplify and streamline every reverse auction, saving time for each stakeholder, supplier, and sourcing manager involved
With Collaboration and Transparency Comes Revitalization of Supplier Relationships
Savings targets are and always will be the number one priority for anyone in procurement. However, maintaining and strengthening supplier relationships must become a close second for teams looking to move up the sourcing maturity curve. And, as we’ve seen in other parts of the business, this improved relationship can only be achieved through collaboration and transparency – the two key components that make a reverse auction worth running.
“What I have seen through the years [is that] small suppliers can compete very nicely with large suppliers when a fair, transparent, level playing field is established.” – Greg Brandyburry, President of RDPE Inc.
Moreover, when suppliers’ visibility into these events is enhanced, they can better comprehend their buyers’ requirements, and are ultimately better prepared to put their best foot forward.
Breathing Sighs of Relief as Bandwidth Increases
When reverse auctions are used as a collaborative and transparent asset in sourcing strategy, everyone saves valuable time and resources. Adam Maidment, Content Writer for Portfolio Procurement notes that, “most reverse auctions won’t last longer than an hour either, meaning that the actual process can be wrapped up quicker, and both business and supplier can get on with what they do best.” In other words, this is a win-win situation.
Tack on an expedited negotiation process along with a smooth, automated auctions platform, and category managers are now free to focus on strategic sourcing and analysis. For example, Adobe’s procurement team was able to cut down negotiations with multiple global suppliers after optimizing its process. Antonio Humphreys, Senior Manager of their Global Procurement team, noted that, “we were able to streamline negotiations to less than four hours and present savings options to the business for millions of dollars below the historical incumbent pricing.”
And procurement professionals aren’t the only ones taking advantage of reverse auctions’ many benefits. Finance teams can simplify pricing, streamline negotiations, and build more dynamic relationships with strategic suppliers. Larry Wood, Intuit’s Finance Operations Director, commented, “We recently conducted a reverse auction with telecom vendors, which I think really pushed the envelope. Even some of our consultants cautioned us that telecoms have complex pricing processes, governed by pricing boards, and that they wouldn’t be able to do dynamic pricing in a real-time environment. But we found that it actually worked quite successfully in practice—just as a reverse auction should.”
Become Familiar with Modern-Day Reverse Auctions (Done the Right Way)
Across the globe, sourcing leaders are breathing new life into reverse auctions as they transition their teams from manual processes to collaborative solutions that open up the floor for buyer, supplier, and everyone in between to have the necessary visibility for a job well-done.
With the elimination of archaic harmful negotiation tactics, both sourcing professional and supplier can continue to strengthen a lasting symbiotic relationship. And everyone can go home happy.
Take the next step in learning about what successful reverse auctions look like for best-in-class procurement teams. Find out how by accessing your complimentary copy of Reverse Auctions: The Way Everyone Wins.