E-procurement has been around for some time now, but it is surprising how few organisations utilise it when procuring goods and services.
When I refer to e-procurement, I specifically mean online or electronic tenders and reverse auctions. To me, an e-tender is not a soft copy Word document sent via email. This is not realising the benefits that e-tender software has to offer, which includes the ability to add large files (e.g. detailed technical specifications, artwork) to an online portal for participants to download.
Additionally, the best systems allow you to track participants’ progress through the tender and message everyone simultaneously with any new information. E-tenders should enable the buyer to administer and manage the whole process more efficiently and effectively.
There is still a lack of understanding within buying organisations and a reluctance from suppliers to participate in e-auctions. A property director I worked with baulked at using e-auctions in their area of the business. “We’re not buying our carpets off eBay” was the view.
Another perspective is that e-auctions are only appropriate for commodity items. In reality, if you can clearly define your requirements and involve enough appropriate suppliers, you can auction almost any good or service, provided the spend is sufficient to make it a worthwhile exercise for the buying organisation and of interest to suppliers. But e-auctions are not a panacea.
Significant work needs to be done to define your requirements pre-auction (e.g. drawing up specifications, forecasting volumes, confirming terms and conditions), pre-qualify suppliers, ‘build’ an appropriate auction (there any many different types and variables), talk suppliers through how the auction will work and ensure they are fully trained.
There is often a concern for suppliers that auctions are about lowest price. This is very much not the case. There are so many factors to consider in a contract award decision aside from price and at Procure4, it is explained to auction participants that being the lowest priced supplier at the end of the event is no guarantee of securing the business. Award decisions are always taken ‘offline’ following the auction, with quality, service, cost of change etc. being considered.
Of course, all things being equal, the lowest priced bidders will be favoured. Suppliers should be assured that e-auctions are typically used to understand ‘best and final offers’ in a quick and efficient manner, saving them and the buying organisation time. Even when a supplier is unsuccessful in securing a contract following an auction, they can obtain market intelligence through participating. Even though they are typically unable to see the ‘lead’ price in the auction or who has submitted it, the supplier’s own ranking will be conveyed as the auction unfolds. Surely understanding how your competitors are pricing opportunities is useful information?
For the buying organisation, an e-auction will often demonstrate the ‘market price’ for a good or service. This gives assurance as to what the ‘right’ price is and highlights any outliers that they should be wary of.
☛ Ben James works for procurement consultancy Procure4