How can we Avoid Alienating Suppliers in Auctions?

Over on Tim Cummin's blog, I recently came a cross a post that does a good job highlighting how we can avoid distancing our suppliers from new types of sterile negotiation processes. According to Tim, "With more than 80% of negotiations now undertaken primarily by 'virtual' means (i.e. limited or no face-to-face meetings), it has become imperative that buyers and sellers become more astute at their management. When using automated systems -- whether it's specific software applications or more general methods such as e-mail -- it is easy to forget that there are real people with real feelings at the receiving end. Systems are not sensitive to their emotions or needs and it is very easy for misunderstandings to arise and alienation to occur."

Are there ways of using online negotiations and tools such as reverse auctions without creating a truly sterile environment, burying relationships and emotions in favor of a more transparent and analytical decision framework? The answer is not only yes – it's also one that we must think about more aggressively as we consider the secondary and downstream implications of using new types of negotiation tools in the first place. In this regard, Tim suggests that it is "certainly important for buyers to remember that if they alienate too many potential suppliers, their future auctions are likely to suffer."

How can we avoid such a fate and still leverage online RFP, RFI, reverse auction and other negotiation tools? Tim's recommendation is that it is "essential to vary the process around the use of the tool, to distinguish based on factors such as contract value, duration, the extent of competition and the need for a relationship that goes beyond simple transactions. I know that some organizations have developed far more sophistication in their use of spend management software, but I don't know how general that is."

I would also add to this list the importance of the human element of supplier management. It's OK to let a tool drive the negotiation and decision framework, but using a tool isn't an excuse to avoid face-to-face interactions or developing suppliers to foster overall, closer-knit relationships. As an example of a company that has invested significantly over the years in both online negotiations and supplier development, United Technologies Corporation (UTC) represents an ideal case in point. Check out the link to their supplier development site if you're curious about how active supplier engagement can help balance out online negotiations as part of a more holistic approach to cost savings and risk reduction.

- Jason Busch

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