Auctions should always be run in a fair, open and organised fashion. This guide outlines the important factors you should have in mind whilst hosting your auction event and aims to provide you with the tools and knowledge you need to demonstrate professionalism and courtesy towards your suppliers.
Do’s
1. Create a clear specification - before taking any tender to an online auction, it is very important that your requirement is fully understood and specced out. Clearly defining what is being negotiated will strengthen your position and help obtain the best possible result by ensuring that all parties will be bidding on a like-for-like basis
2. Know your participant numbers (and try to increase them!) - Sourcing Dojo provides three types of auction: Ranked, Open and Japanese. Ranked and Open auctions rely heavily on competition between participants in order to help achieve savings, whilst Japanese auctions do not. Understanding the number of suppliers that are able to bid in your auction and on any specific lot is essential to ensuring that the auction will be a success.
Our experience tells us that the most successful Ranked and Open auction events have 4 or more participants involved. However we’ve also seen very successful auctions with just two bidders - the key here is that the bidders must be hungry for the business and operating at similar prices. With these auction types, the more suitable participants you have, the better your chances of a great event.
Japanese auctions, on the other hand, are recommended for smaller supplier numbers or where interaction between the bidders would be unlikely in a Ranked or Open auction because the bids are likely to be too far apart. In scenarios where there are just one or two bidders, a Japanese auction might be the most appropriate. Where there is more than one bidder, but the pricing is likely to be very different, you might consider running 2 or more Japanese auctions with different starting prices.
Before finalising an auction plan, it is important that you make sure you know how many suppliers are willing and able to bid, and because more suppliers generally equals more savings, we’d also recommend that you do your best to identify new suppliers if the numbers initially look low.
3. Sell the opportunity - this isa clear opportunity for participants to win business in a private and transparent environment which presents numerous advantages for them. Remember to sell the opportunity in the documentation and communication by enticing them with possibilities of future business and bidding in a fair process. As an email can sometimes be seen as suspicious by the invited participants, we would recommend you follow this up with a phone call and counter any early objections.
4. Make the opportunity attractive -following on from the previous point, it’s important to ensure that the opportunity is sufficiently attractive. If the size of business is insignificant to the invited participants, then you may find difficulties in getting them motivated, which could lead to an unsuccessful event. The process can be used as an opportunity to consolidate and rationalise your category in order to increase the potential appeal. If your spend value fails to attract the large market players to compete, there are always more niche participants or local sales offices who would value your business.
5. Keep it simple - from the participant’s perspective, being involved in an online auction can be a time-pressured and potentially stressful process if not managed correctly. For this reason, when setting up the auction we strongly recommend that you do your best to keep things simple by not including too many lots or adding any unnecessary complications to the auction itself. For example, where you are only really concerned about the ‘total price’ quoted in an auction, consider only including one ‘total price’ lot in the auction itself and asking participants to provide a more detailed price break-down afterwards.
In general, we do not recommend running an auction with hundreds of lines as this is likely to confuse participants and prevent you from gaining the best possible price, so we recommend consolidation wherever possible. Where the need for large numbers of lines cannot be avoided, you may wish to consider breaking your requirements down into smaller auctions of more manageable amounts to ensure participants are able to focus.
6. Include your internal stakeholders in the process - the auction process is highly visible and auditable. Particularly for more strategic sourcing, many people in the organization may be affected by the outcome and the last thing you need is difficulty in implementing the final decision. To avoid this, best practice dictates that you should involve your internal stakeholders early in the process in order to hear their views and gain their confidence and buy-in. This ensures that any conclusion will be theirs as well, and means that implementation of the final result will be easier. We also strongly recommend sharing the live auction with your stakeholders as this is a great way to get them excited about the process and let them see the savings accumulate!
7. Require suppliers to submit qualification / opening bids - preparation is key when running an auction. One easy way to ensure you have fully understood your supplier participation levels and that suppliers are comfortable with using the Sourcing Dojo software is to require each supplier to submit their qualification bids well in advance of the auction.
Receiving qual bids will enable you to confirm that you have enough suppliers who are able to bid on each lot - or if you discover that you don’t then you’ll have the opportunity to either change the lot structure or invite more suppliers if necessary. At this point you may even identify savings before the auction has started, meaning the auction result is the icing on the cake. Requiring participants to input bids before the auction also allows them to get used to bidding in a less time-pressured environment, giving them more confidence and knowledge on how to bid in the auction itself. This will also give you the opportunity to correct or remove any incorrect or suspicious bids, communicating to the participant(s) in good time about where they went wrong.
As well as ensuring you understand participation levels and that suppliers are comfortable, this stage of the process is a final point at which any errors or lack of clarity in the spec can be identified by participants before the auction starts. We recommend that you give yourself enough time here to listen to any feedback participants have during the bidding process.
8. Ensure realistic timescales - to ensure the maximum success from the auction, the timescales for the process should not be too short as to reduce the maximum chances for participation but also should not be so long as to put participants off. A typical duration from notifying the participants that there will be an auction to the auction itself would be 2 to 6 weeks.
9. Communicate - clear and concise communication is very important for making sure all parties are happy and engaged, which helps you obtain the best outcome. The process that you will follow, including the final award, should be upfront and visible to all from the start. Communication prior to the auction will ensure that you keep participants involved and motivated, communication during will help avoid any upsets, and communication after will ensure you receive good feedback and maximum participation for your next auction.
10. Speak to your incumbent - we recommend that you involve your incumbent early on in the process and explain your reason for using an auction. You will most likely want your incumbent involved and actively participating, so be open and honest. Give them an added opportunity to take part by including business that is not currently theirs. Maintain your relationship by stating it is the company requirement and not your own idea. Sell your incumbent the challenge by suggesting that as they have been offering your company such great service and value in the past, they have nothing to fear. By approaching the tender with integrity, you will eliminate problems that might arise downstream.
11. Be fair in feedback - being open and honest will help keep participants happy and make them more likely to be involved in the future.
12. Listen to your participants - potential buyers and suppliers have a great deal of experience which you should listen to. Certain questions posted prior to the auction may lead to changes in your documentation, specifications, service levels and so on, which could ultimately lead to a more successful conclusion.
13. Think about contract award - we have already discussed that the process for the award should be clear and upfront. You will also need to examine all the other implications such as implementation and the ability to work with the final participant, irrespective of whether it is a contract award for supply or purchase. For a supply contract award, remember to examine all options, such as value engineering opportunities, which could be established in the contract. For a contract award for purchase for instance, think how payment terms will affect the final liquidity.
14. Consider meeting your final choice participants - for either a forward or reverse auction, we would recommend you consider meeting with the top participants. This will help to ensure that the final choice will be a workable relationship. If you are going to do this, it is wise to communicate this before the process starts as this will put the participant base at ease that you are not just looking for a quick award only based on price. This is obviously not applicable in all circumstances, where price could in some cases be the sole factor.
15. Have an honest intent - as a Host moves forward with an auction, there must not be an underlying motive to push one participant, but to be genuinely open for any participant to be successful. Participants will only be willing to commit themselves to an auction if they feel there is something to gain. Without your participants, you have no event.
16. Read our other guides - this will help ensure a professional process from picking the right category through to optimising your chances of success.
Don’ts
1. Change major details just before an event - we understand that anything can change as a Host moves through the tender process. However, in the interests of everyone, we strongly recommend that you try to avoid changing major details in the closing stages before an auction, as not only will this de-motivate your participants, but it might create an unfair playing field and affect your chances of obtaining the best result.
2. Change your process after the event - stay true to your process. For instance, if you have communicated that the lead bid wins, you must hold true to your word unless that participant has demonstrable flaws. If you are concerned about the final price, then set your qualification bid carefully or leave the choice of the final participant at your discretion, i.e. Host's Choice..
3. Let participants bid after the event - you have initiated a fair process which is clear and open to all. Letting participants bid after the event ruins your credibility, can affect your future events, and gives online negotiation events a bad name.
4. Invite participants just to increase liquidity - do not invite participants who you would not be prepared to award the contract to for the sake of increasing the competition. All bidding takes time and requires preparation, so participants should only be involved who have a realistic chance of winning.
Not Allowed
1. Shilling - shilling is where a Host assumes a false identity or uses a third party to affect the final price, for example, by setting up a participant account and placing bids in an auction in order to drive down the price. This is very serious and is considered a form of fraud and a criminal offence. If Market Dojo discovers that a Host is engaging in these activities, then all access to the platform will be revoked and any relevant authorities will be notified.
2. Deliberately Mislead - posting false or misleading product descriptions or pictures is illegal. Sourcing Dojo should not be used to provide any information that is known to be incorrect with a view to falsely obtaining a better outcome. Any Host suspected or found in violation of this rule will have their access revoked.