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Don’t Sacrifice Long-Term Value for Short Term Gain: A New Approach to Reverse Auctions

It’s easy to look at sourcing and procurement strategy as a black-and-white, zero sum game. When I win, you lose. And at the center of this dynamic is the assumed trade-off between maximizing savings and supporting supplier relationships. Truly, achieving bottom-line savings and fostering strong supplier relationships are competing priorities of which procurement is well-versed.

However, it doesn’t have to be this way. Today, top procurement teams are tackling both of these obstacles at once – without sacrifice – and they’re doing it by returning to one of the oldest and most overlooked tricks in the book: Reverse Auctions.

When reverse auctions burst onto the sourcing scene in the ‘90s, they were often employed as a means of intimidation: aggressive, expensive, and unfair to suppliers. Even the stakeholders and sourcing leaders involved were put off by this technique; no matter the outcome, there was always some damage to business relationships.

But there’s a change on the horizon. Many successful procurement teams are re-evaluating reverse auctions through today’s more supplier-centric lens and repurposing these events as a leading procurement strategy to knock out savings targets while at the same time furthering their valuable, strategic supplier relationships.

And that’s the key: keeping supplier engagement front and center. By employing a more supplier-centric approach to reverse auctions, procurement can beat their savings targets, bolster vendor relations, and keep high-value, loyal partnerships moving forward. It’s a win-win-win situation. And who doesn’t like winning?

Here are three key considerations to bolster your procurement strategy with supplier-centric reverse auctions: 

  1. Promote collaboration by creating events that invoke teamwork for both buyer and supplier.
  2. Let suppliers know where they stand by prioritizing their experience.
  3. Produce an organic competitive environment where negotiation cycle time is immensely shortened.

Promote collaboration by creating events that invoke teamwork for both buyer and supplier.

Modern sourcing teams have found that when they put their top-tier suppliers first during the reverse auctions process, they inherently showcase investment into and loyalty for these relationships. While this benefit is not always quantifiable, it can be just as attractive to a supplier, if not more so, than associated dollar signs.

To automate this process, teams worldwide are implementing technology that supports both sides of the screen. Best-in-breed solutions focus on usability, not features, and include clean interfaces that suppliers can easily navigate. What was once a complicated and clunky portal, now mimics comforting Excel spreadsheets, algorithms and all.

Let suppliers know where they stand by prioritizing their experience.

To promote supplier participation and increase competition, today’s sourcing teams abide by a procurement strategy that sets up vendors for success by making sure they’re as comfortable as possible. How so? First, by setting proper expectations for a successful bid, and second, by equipping every participant with clear guidance for a competitive bid.

Let’s dig into that a bit more: when suppliers have a realistic scope of their buyers’ requirements, they can more accurately understand, predict, and prepare for what their ideal outcome should look like. And this way, everyone can opt-in to the event with confidence.

Although many strategic sourcing solutions claim to be intuitive, that doesn’t always equate to supplier-friendliness. In order to make suppliers as comfortable as possible, agile sourcing teams have expanded training to include both internal users and external suppliers. Many teams also preclude reverse auctions with a “practice round” so suppliers get a feel for what’s to come in a demo environment.

All of these actions, big or small, can only bolster vendors’ confidences which, in turn, creates a lasting impression that sticks with the attendees and will leave them wanting more of the same strategic situation.

Produce an organic competitive environment where negotiation cycle time is immensely shortened.

By checking off steps one and two, today’s 21st-century sourcing teams can move full steam ahead into the era of the Modern Auction, and participating suppliers, acclimated to an exciting and competitive bidding landscape, can focus on the art of the strategy.

When the playing field is leveled for both buyer and supplier, the need for email back-and-forth, dragged-on discussions, and lengthy onsite meetings dwindles, relieving participants of unnecessary and unwanted clerical work. And when suppliers and sourcing professionals can get down to the real prices in just a few hours, precious bandwidth is returned to all involved.

As the vehicle for the reverse auction shifts to the background, the path becomes clear for all involved parties to focus on the true sourcing methodology, where everyone can positively contribute to a seamless and strategic auction.

Pave the way for supplier-centric reverse auctions — and master your savings strategies.

Today’s biggest sourcing trendsetters are reviving reverse auctions and leveraging them to master savings strategies and reinstill loyalty with key suppliers. With strategic sourcing stretching its influence across the globe, procurement teams, already putting their suppliers first, now have more ways of endorsing their support through tactics such as reverse auctions.

Now, reverse auctions have the ability to promote collaboration, give necessary visibility, and allow buyers and suppliers to focus on the craft they love most: the strategy of sourcing.

We can help you get started down your own path to an auctions revival. Check out how Scout’s Reverse Auctions and other sourcing tools can help you build a win-win-win supplier engagement and procurement strategy right out of the gate.

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