With respect to e-Auctions, there’s a host of myths out there that need to be busted. Where-forth they sprang from, I don’t know, but to the graveyard, they must go! I’ll start with some of the more dangerous ones, and maybe the experts from e-Sourcing Forum and Where Next will chime in with some of their personal favorites (or is that afflictions) in the comments.
Myth 1: Auctions won’t save me a single penny!
Dozens upon dozens of providers have saved hundreds upon thousands of clients millions upon tens of millions (and sometimes hundreds of millions) of dollars using e-Auctions – and sometimes saved this much on the first auction! Done right, on the right category, an e-Auction will save you money – with savings in the 5% to 35% range, depending on the category and whether or not this is your first time applying serious e-Sourcing to the category.
Myth 2: I’ll e-Auction it! e-Auctions always save money!
This myth is almost as bad as myth #1. Not everything can be auctioned – and anytime some fool starts with the one – and I mean the one – high dollar category in the company that can’t be auctioned, and gets dismal results, he all of a sudden does a 180 and decides that he was wrong, and that myth #1 is right – and won’t ever budge from that position. (Even though his stupidity costs his company tens, if not hundreds, of millions!) There are a number of requirements for a successful e-Auction. The first two are the existence of a competitive supply base and demand exceeding supply. If there are only two suppliers in the whole world for the item you need, and if demand is increasing faster than their production capabilities, even if the suppliers agree to an e-Auction, your prices aren’t going to go down. The suppliers are going to bid high and stay there. And that’s if you’re lucky! If you’re unlucky, they’ll collude and you’ll be up sh*t creek without a paddle or a way to plug that slow leak in your canoe.
Myth 3: If I don’t like the results of the e-Auction, I can just hold it again.
If you believe this, then you’re the one giving e-Auctions a bad name! Assuming you can even get any of the suppliers whose chains you jerked to even agree to another round, do you really think they’re going to give you anywhere near their best price? And do you think they’re going to want to participate in your future auctions? And do you think they don’t talk to each other? The rule is this – if you commit to an e-Auction, you commit to an award based on the result of the e-Auction – whether you like the results or not. That’s why you do your homework before deciding to do an e-Auction and make sure that the category, and market, is right for an e-Auction. If it’s not, you choose another negotiation method, such as a multi-round sealed-bid RFx with Decision Optimization to help you appropriately analyze potential awards.
To find out more about the Key Steps to a Successful e-Auction and the ethics you need to abide by to build and maintain a positive reputation in the supplier community, check out the e-Auction wiki-paper over on the eSourcing Wiki. You’ll be glad you did.