HOW TO IMPROVE COMPETITION WITH FEW SUPPLIERS

The use of on-line auctions (e-auction) has increased rapidly in the last few years. Since they came onto the purchasing scene in the late 1990’s through the development of internet-based applications but just like with every other breakthrough events and technologies, e-auctions too come with its attendant risks and it is important that buyers and suppliers understand what these risks are so as to mitigate against its effects. Some of these risks are;

  • Bids not having enough qualified and competent suppliers;
  • suppliers not being able to demonstrate the overall value of their product or service and
  • Oversimplification of requirements to ‘fit the system’.

Without effective change management expectations may never be reached and inexperienced suppliers may bid below a sustainable price which makes the entire process unattractive to qualified and competent bidders. If a supplier suffers from a bad e-auction experience, then it is likely they may be reluctant to enter into the process again. Try to make sure that before rolling out an e-auction programme, the process is as fair and transparent as possible and has been approved by a pilot group including suppliers and that feedback from the pilot process is enacted on.

Some of the reasons why suppliers may be reluctant to participate in an e-auction bidding include;

  1. Unsuitable commodity/service – this might be an item where there is no competition in the market place, or that is too complicated to specify or largely cannot be specified
  2. Lack of competitive supply base – if a product or service does not have at least three suitable suppliers, then the e-auction process is not generally suitable
  3. Poor training of buyer/supplier – getting things right first time is imperative to build trust amongst suppliers in your company’s e-auction process
  4. E-Auction timing – If you are inviting suppliers to participate from a different country and time zone, take care that if the timing chosen to run the auction is convenient to those suppliers.

So what if you are running a bidding process and there are not enough suppliers to make the process as competitive as you would want, what do you do?

Highlighted below are some of the strategies you can adopt to find your way around that problem

1.Supplier implementation

Firstly the best good advice I can give to you is that it is important to get supplier input during the pre-bid (for example through participation in building the RFx) to ensure that they feel a part of the process. One key advantage of this is that this dampens emphasis on pricing and buyers and suppliers can focus on understanding and meeting technical elements of the bid, i.e. meeting the customer’s real needs and this can help to produce the desired results even when participation is not very robust.2.

2.Getting supplier buy-in

There is more supplier acceptance of online auctions than there once was, but still you need to tread carefully to get their buy-in. Visit suppliers or invite them to briefings to explain carefully the principles not just of auctions, but more broadly of online sourcing. They will have concerns, but they will have useful input too: they know their businesses better than you do, and what they tell you will help you optimise your strategies for online bidding events. As a result of hard talking up front, online sourcing will help you to create precise and detailed RFQs that will improve communication and reduce business risks further down the road.

3. Driving Best Practise

In order to improve on the numbers and achieve a more competitive bidding process, a procurer needs to put some people, process, performance measurement and knowledge capabilities in place. The first requirement is a clear understanding of the supply base and the criticality of each supplier to the business. Typically an organisation can segment between strategic partners, value-added suppliers and commodity product suppliers. One will also need to build up market intelligence in order to gain a clear understanding of the dynamics of the market sectors and to define sector strategies – for example properly crafted online RFQs and RFPs can help expedite the communication between buyer and suppliers and can help drive a standardised sourcing process across the organisation.

4.Training

Lastly the importance training and retraining of suppliers as to the workings of your online procurement process cannot be overemphasized. Many buying organisations underestimate the amount of time it takes to educate suppliers in online auction tools. Suppliers with less tech-savvy sales teams may need some extra handholding through their first events, and here the assistance of the auction technology provider can be invaluable. Bidders need feel more comfortable about participating in the process especially when there is a limited number of them.

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