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10 Reasons Why E-auction is the E-procurement Tool
Don’t take this personally, but let tooling help you to get better results! Want to reach the ultimate result in a tender where multiple parties are battling each other to win? Broad studies prove that best tender results come when procurement managers choose, after several face-to-face negotiation rounds, to let the e-auction be the final ‘negotiation step.’ Strategy options are endless depending on the situation: e.g. English, Dutch, Japanese. This article helps you to understand the concept of e-auctions, which types to apply, and how to use them to your advantage to close better deals!
What is e-auction?
E-auction is the process of conducting an auction to sell assets, natural resources or other goods through online competitive bidding. All types of products and services are possible to buy via an auction, but most suitable if there are multiple suppliers who can deliver the product or service and if the auction is about a generic product/service with low volatility. Remember: an E-auctions is a way of working, not just an IT tool.
How does the e-procurement work?
- Ask & receive and request for quotations (RFQ) responses.
- Determine your ‘lot & type strategy’
- Train participants of the auction
- Sit back & relax: conduct and monitor the e-auction
- Evaluation of bids
What are the advantages of an e-auction?
- Online tool to facilitate and speed up the negotiation process
- A simple but effective way to save costs
- Alternative of face to face, over the phone discussions
- Transparency over the process and outcome
- Different auction types
- Awarding based on price only or other aspects
- First-time auctions can lead to market shakeups
- Let the market do the talking
- You can auction anything!
- Computers get better results!
What are the most important types of e-auction?
1. English reverse e-auction
- Classic bidding system
- Suppliers bid against each other
- The lowest bidder (within a set time) wins
When to use the English reverse e-auction?
- Bids suppliers are close to each other
- Competition is high
This auction type is recommended when supplier bids are close to each other. Reservation prices and factored bids can be set in order to advantage or disadvantage certain or all participants.
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2. Dutch reverse e-auction
- No active bidding
- Price increases in steps from starting price (± 20% below lowest bid)
- The bidder who first accepts the prize wins
When to use the Dutch reverse e-auction?
- When bids suppliers have a huge difference
- Extra pressure on current supplier because there is no counter offer or second chance
- In this auction type, there is no active bidding, rather all suppliers see the same value increase over time.
- The start price is very low -15% to -30%. At each time interval, the price will increase by a fixed amount X until the first bidder willing to take the business presses the button (sudden death).
- There is a fixed time for the auction, no extension possible.
- Reserve prices and factored bids can be set in order to advantage or disadvantage certain or all participants.
3. Japanese reverse e-auction
Price goes down in steps from high
Supplier approves every step until its limit is reached
Whoever leaves the auction, last wins
When to use the Japanese reverse e-auction?
- Huge difference between bids supplier
- No competitive information can be seen between suppliers
Key success factors for any e-auction
- Test and make sure the competition level is good enough
- Preparation is key: suppliers approved on for example quality, transport, etc.
- RFI & RFQ information is unambiguous and remains unchanged during the setup process
- Inform all parties well on time to reserve slots for live auction and training
- Slightest doubt? Be flexible and postpone
- Get supplier confirmation on start prices/value lots
- There should be no doubt that supplier wins in the auction, wins the business
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