Once the hottest thing in Corporate Purchasing the use of online auctions lost momentum however, shows signs of a comeback as the result of improved cloud based options at lower prices.

1. E –Auction Best Practices
Once the hottest thing in Purchasing the use of
online auctions lost momentum however, shows
signs of a comeback as the result of improved
cloud based options at lower prices.
Bill Kohnen Feb 2014

2. E –Auction: Initial Excitement
• Between 2000 and 2005 lots of interest in E
Auctions
– Success stories from big companies
– Potential of Internet to drive efficiency
– Hungry supply base willing to participate
– Lots of companies offering solutions
Bill Kohnen Feb 2014

3. E-Auction Interest Cools
• Success stories from big companies arguably came
from better preparation and leverage more than EAuction process
• Big companies success not always seen by smaller
enterprises
• Fatigue from Supply Base getting margins squeezed
• Software solutions: not
optimized, expensive, Enterprise versions faced
corporate IT resistance and Cloud based offering not
well accepted
Bill Kohnen Feb 2014

4. E Auction Renewed Interest
• New Cloud based tools available
• Widespread acceptance of e-commerce
transactions
• Suppliers more confidant in participation
• Global Suppliers absolutely comfortable with
process
• Mid Level Purchasing professionals “grew up”
in a web based world … more natural for them
Bill Kohnen Feb 2014

5. Best Practice Areas
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Policy
Strategic Sourcing / Opportunity Analysis
Supplier Analysis
RFx Development
Preparation for Online Bidding
Auction Event
After Event
Bill Kohnen Feb 2014

6. Policy
• Create policy that defines categories where if two or more suppliers are
qualified – item is eAuctionable.
• Require top Sourcing Manager/VP approval not to E-Auction a commodity Change buyer mindset to “Everything is eAuctionable”
• Require each sole source to be aggressively approached. Disaggregate
requirements as possible and/or get sole source supplier to agree to
auction for subsystems.
• Require all categories to be evaluated for potential E-Auction benefit using
structured criteria; prioritize and select auction approach, based on
outcome
• Put in place and monitor on a regular basis metrics regarding E-Auction
process relative to overall spend.
Bill Kohnen Feb 2014

7. Strategic Sourcing
Saving Opportunity Analysis
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Online Bidding (Auction) is not a replacement for a strategic sourcing process sourcing strategy becomes more important
– Is now the time to hit the market? Is it a buyer’s or seller’s market? What is driving the
suppliers?
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Challenge your “strategic supplier” relationships
– Are you really benefiting? Are they competitive? To what part of your business strategy do
they contribute? How?
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Use of a reverse auction is not necessarily an alternative to catalog buying or
strategic relationships; it may be a precursor.
Online auction may be a transitioning device for a relationship commodity
– From one relationship (from which you may not be benefiting) to one with greater benefit for
you.
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Use online auction to test the competitiveness of long-term supplier
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Make sure that there is competition and excess capacity in the market
Establish criteria and authority to decide, together with your commodity team. Get
that buy-in before the auction.
Bill Kohnen Feb 2014

8. Supplier Analysis
• Start immediately gathering information on potential
suppliers, & on their qualification
• Scrub supplier list ahead of the auction
• Think how online auction will integrate with requisition
process
• Determine level of supplier qualification & make sure
all suppliers meet that requirement prior to auction
• Develop invitation message to suppliers, focused on
the opportunity for them to gain business. Consider
sending it to top sales management or even to CEO
Bill Kohnen Feb 2014

9. RFx Development
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Group parts, but only similar ones; not too few, not too many
Think like a supplier – what would make the package more attractive to them,
without increasing your cost or the difficulty to run the event?
Make sure all invited suppliers can provide all parts in a lot bid
Remember: order frequency, quantity and value are drivers
Make sure to set “Reserve” price at a level above which you will not place the
business
Set the “Target” price at a level below the “Reserve”, and at a level you really
would like to obtain
Tell suppliers what type of pricing they are to submit: individual item prices or lot
prices
Load data well in advance; account for time necessary to revise documents if
necessary
Establish clear, written rules – Bind suppliers to them
Plan ahead - your auction package may need review by Legal, Environmental,
Logistics
Some suggest Ideal e-Auction size:
– US$100k and US$10 million
– 2-4 line items Maximum 8 line items
Bill Kohnen Feb 2014

10. Online Bidding Preparation
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Verify Internet connectivity for all users (Buyers, Admin., Suppliers)
Have suppliers who need connectivity to begin work now, and report progress
weekly
Give suppliers adequate time to prepare for an event; first ones require more
Avoid Mondays - Some suggest Thursday pm is best
Post all information 4-5 days ahead, so suppliers can gain connectivity and review
data
Suppliers must see your approach, event and actions as consistent, open and fair
Post FAQs to address usual questions
Tell suppliers to know their costs ahead of time – total cost and incremental costs
Suppliers should have their decision-maker available during the auction. Most
companies would rather retain business at a slightly lower margin, than lose it.
Make sure new suppliers have gone through training; hold practice session for new
suppliers, or do an RFI
Have suppliers use same computer/browser in training & mock auction as for when
a real auction
If less than 50% of your invited suppliers accept your invitation, consider revising
your event or question your choice of suppliers
Bill Kohnen Feb 2014

11. Online Bidding
• Starting price:
– Avoid extreme pricing low or high.
– Market Intelligence is important for this
• Choose decrement to allow significant price savings without
slowing auction too much
• Schedule the offerings so that bidders are not overwhelmed or
confused
• Be available to answer supplier questions
• Ensure I.T. is available if technical problems occur
• Consider time zones when setting auction time
Bill Kohnen Feb 2014

12. After the Auction
• Provide fair and reasonable feedback to
unsuccessful bidders.
• After each e-auction, summarize your lessons
learned. Search for root causes to issues
• Strictly enforce and monitior success based on
decision criteria initially established.
• Ensure and monitor that actual savings are
captured.
Bill Kohnen Feb 2014

13. Summary
• E Auctions are an important tool for Corporate
Purchasing Departments
• While seeing a comeback the goal is not just to
conduct E –Auctions as an end goal itself
• Important step is to review value of E-Auctions based
on your Spend Profile
• Strategic Sourcing remains important
• Some categories lend themselves to hybrid solution:
such as travel and office based items which can be
managed with an integrated cloud based solution that
may also incorporate expense reporting.
Bill Kohnen Feb 2014