“All models are wrong but some of them are useful.”
(G. Box)
What are eAuctions and when to use them?
One of the most powerful tools procurement softwares offer are eAuctions. eAuctions in Procurement are a unique market concept where buyers and sellers don’t negotiate face to face, but sellers compete with each other on the digital market in order to get the job and strengthen their market position. The main advantage of this approach is the ability of including a large number of suppliers in negotiations simultaneously, which helps getting a clear, realistic picture of the market. Given that buyers in eAuctions don’t negotiate with vendors directly, but vendors compete against each other, this concept encourages gaining most favorable prices and thus generates additional savings. However, the goal of eAuctions is not only to get the best price, but also to speed up the negotiation process.
There are two different types of auctions: reverse and forward auctions. In forward auctions, buyers bid by raising the price of a good or service the seller sells, while in Procurement reverse auctions are being used more frequently. Reverse auctions are auctions where the role of the customer and the seller are reversed so prices decrease systematically. They are called reverse because the price decreases during the auction and the final price can only be lower than the starting price – never higher. Reverse auctions are a great tool for gaining most favorable market prices and encouraging competition between suppliers. They include one buyer on one side and one or more suppliers on the other. The supplier that offers the best price wins. Reverse eAuctions are a widespread tool in modern Procurement because they bring numerous benefits – as for buyers, thus for suppliers.
The main benefit of eAuctions for buyers is gaining significant financial savings. By encouraging market competition, prices of goods and services procured are reduced by 3 to 20% in comparison to the lowest prices achieved on tenders. Except for financial savings, eAuctions also bring savings of time. The conventional negotiation process is often very time-consuming but eAuctions speed up the procurement process significantly. Unlike traditional negotiations, most eAuctions end within 15 minutes to an hour.
Nevertheless, benefits from eAuctions aren’t found in financial and time savings only – eAuctions provide all suppliers with same terms and conditions so all of them have the equal opportunity to compete. In Ensolva, all offers are submitted to the buyer anonymously so favoring any of the suppliers is avoided. With eAuctions, it’s possible for an incomparably larger number of bidders to participate in the auction, resulting in a higher chance of obtaining better prices than using traditional procurement methods. Given that a large number of qualified bidders compete, eAuctions are a great tool for achieving actual market prices of goods or services that are the subject of auctions. Auctions, therefore, guarantee buyers that goods or services procured really are Best Buy.
Don’t be afraid to use eAuctions in a creative way. eAuctions can give very good results if, for example, combined with standard negotiations. They can be used as the last step of the selection process, where there’s a small number of eligible suppliers with similar prices. This way, by giving all suppliers the same opportunity to affect their market position, both you and your suppliers will be assured that the job has really been given to the one who offered the best conditions.
Despite numerous benefits, there are situations where using eAuctions is not recommended. One of the main cons of using eAuctions is lack of face to face communication. By using eAuctions, the opportunity to build deeper and better relationships with suppliers is lost, so use of eAuctions is not particularly desirable when purchasing goods or services you usually acquire from your long-time associates. eAuctions are also risky to use in cases where they can harm your negotiating position, for example, in cases when it is clear in advance that vendors will not respond to the auction. After an eAuction is done unsuccessfully, it’s almost impossible to renegotiate good prices and conditions so it is better to use direct negotiations in these cases.
eAuctions are a very powerful tool in modern Procurement and, if used properly, they can bring numerous benefits to your business. In any case, it is important to evaluate carefully when to use them, and when not – primarily because in some cases it’s really not all about the money. There’s a wide range of features to be evaluated before procuring a particular good or service, but good preparation will always give you the best results. In order to make your procurement process easier and simpler, choose a complete software solution like Ensolva and improve your business today!
