27 June 2002 | Geraint John
E-auctions allow purchasers to determine the real cost of supplier partnerships, according to the UK's second largest bank.
By making the true market price for a product or service transparent, auctions enable buyers to analyse price differentials properly for the first time, said Eric Davies, head of purchasing processes and systems at Royal Bank of Scotland Group (RBSG).
Speaking at CIPS's eSourcing and Procurement Show in London, he said: "If you know what the market price is, you can weigh up whether the extra cost involved in having a partnership is worthwhile. You couldn't do that before."
The danger with partnership arrangements was that buying organisations didn't test the market often enough, he added.
Davies told delegates that RBSG, which includes brands such as NatWest, Direct Line and Tesco Personal Finance, had run 20 e-auctions using sourcing specialist FreeMarkets since March last year.
Products and services covered included agency staff, laptops, debt recovery, smart cards and corporate clothing. Price reductions averaged 20 per cent and in only about a quarter of cases had incumbent suppliers retained the business.
Future e-auctions would target car hire, filing cabinets, printed forms and envelopes, and branch merchandise, he said.
Of RBSG's £2.6 billion annual procurement budget, 70 per cent went on services, Davies noted. "Can we specify these clearly enough to put them online? In most cases, we think the answer is yes."
The company had four goals in running e-auctions: implement e-sourcing as part of a corporate strategy of best practice; establish a fair and transparent online bidding environment; get accurate market prices; and reduce negotiation cycle times.
"Our mindset now is that everything is suitable for auction unless proved otherwise," he said.
"E-sourcing doesn't necessarily save time, but it does redistribute it in the procurement cycle -more time spent on preparation and less in negotiation."
Persuading buyers to accept this change as a positive one, and not a threat, was a challenge, Davies admitted.
Making a success of e-auctions therefore required teamwork, as well as a total commitment from internal customers and a strong and consistent message to suppliers that deals would only be struck online.
He agreed that 20 per cent savings were unlikely to continue. "I don't think it's sustainable at these levels, but then I don't think that's the right measure. [Future auctions] are about making sure we stay at the market price."