profit from procurement

To eAuction or not to eAuction?

15/03/2016

An eAuction is an excellent tool in the armoury of an organisation’s procurement capability, but when should it be used and for what products or services?

Before undertaking any sourcing activity, it is incumbent on the procurement team to ensure that that activity is aligned with the organisation’s business strategy i.e. that it delivers the organisation’s business requirements.

Therefore, can an eAuction contribute to the delivery of business requirements?

For the correctly chosen products and services, the answer is a definite ‘yes’, but only if the procurement team has done its due diligence in developing its strategy.

When considering whether to undertake an eAuction, procurement should conduct a spend analysis to determine which products and/or services are appropriate to auction.

As a general rule, the more a product or service has an unambiguous specification, the more it lends itself to being auctioned i.e. products and services which are easily specified and which have a number of suppliers (the more, the better). If the products or services can be grouped into categories e.g. packaging, print, office supplies, fleet etc., then the scale of the eAuction can be enlarged to include most, if not all, of the items purchased and auctioned in separate lots.

If there is any doubt about using an eAuction, or there is some resistance to using them within the organisation for whatever reason, start by selecting a product which the spend analysis shows to be readily specified and low risk (to the organisation) in order to establish ‘proof of concept’.

As with the development of any procurement strategy, business needs must be established and this means engaging with key stakeholders to determine what they are e.g. what is required from the product or service being procured: cost reduction, improved quality, improved service, innovation or a mixture of some or all of these?

Once the business needs have been established, best practice dictates that procurement should assess the market, select potential suppliers and pre-qualify them to ensure that they can meet all business requirements before inviting them to participate in the eAuction.

Procurement should only invite suppliers to participate in an eAuction after satisfying themselves that these suppliers can meet the requisite business needs e.g. of assured supply, quality, service.

Procurement can now hold the eAuction, safe in the knowledge that whichever supplier provides the lowest cost (if that is the selection criterion) can be selected without compromising on quality, service or other specified business requirements.

eAuctions are used across a number of products, services and categories. The more complex the products and services being sourced, the more procurement must conduct due diligence in developing the procurement strategy.

To repeat, eAuctions are an excellent tool in the armoury of procurement.

However, it is the knowledge of when and how to use them which makes the difference as to whether an eAuction will succeed or fail.

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