Spend Matters welcomes this guest post by James Martino, CEO of Avotus.
According to the Purchasing & Procurement Center, an organization that provides comprehensive information for purchasing and procurement professionals, the advantages of e-sourcing are becoming more evident as a wider understanding of its many uses and benefits becomes apparent. Establishing an e-sourcing process that can truly realize these benefits is tricky at best and counter-productive, time-intensive and cost-prohibitive at worst. This is where establishing a partnership with an experienced vendor that uses the latest technology puts the user’s interests ahead of the suppliers.
Reverse Web Auction: Case Study
One such technology that has proven to be extremely effective is the online reverse auction. In this scenario, sourcing is entirely automated and replaces the inefficient paper-centric process for procuring global network services such as; voice, data, wireless, cloud and Internet (IP-based) broadband services.
The e-sourcing auction replaces a legacy RFP creation and issuance process with an automated online reverse auction, which allows service providers to bid against one another, in real-time, on rates, terms and quality metrics. This environment creates a buyer-enhanced playing field, where bidders compete aggressively on both quantitative and qualitative contract components and respond with bids and concessions that align to purchaser requirements.
The chart below shows how an e-sourcing platform, in this instance Avotus’ Intelli-Sourcing platform, drove bidder behavior to achieve aggressive pricing for a large utility customer. Note that in this example, an early stalking horse bid set the tone. Late in the process a major supplier broke from the pack to effectively outbid the competition and ultimately win the business – a win-win for both the provider and the end-user.
As the chart shows, the key is to engage a broad range of bidders and provide them with visibility into how they rank against all other competing bidders, both qualitatively and quantitatively. “We know from running $1.3 billion in events like this that one or two bidders are typically going to break from the pack and contribute the lion’s share of the overall savings,” explained Hugh Shannon, director of business development at Avotus. “What we don’t know is who that bidder will be. Therefore, a platform that can manage a greater number of bidders without creating linear workload is of a great advantage. It’s almost impossible to create this dynamic outside of e-sourcing.”
This ongoing engagement coupled with the bidders’ competitive desire to win, increases as the process moves toward the final stages and bid frequency increases. As such, it is important to choose a partner and platform that drives activity on an ongoing basis during the entire bid process. The ability to handle and respond to questions from bidders is also one of the important features that managers need to consider.
A recent study conducted by researchers at Stanford University, HP Labs and Ecole Polytechnique, examined buyer behavior in online outsourcing websites where bids arrived over time. Their research found that bids that are submitted last are chosen more frequently. This data, combined with real-world examples like the one above, underscores the critical need to partner with professionals that have the experience and tools to facilitate transparency and competition.
Picking the Right Partner is Key
With a traditional RFP, carriers submit one bid and negotiate the terms later. Reverse auctions give bidders greater transparency and visibility into competitors’ offers. This transparency draws vendors to participate because they know they have a chance to “win” the deal without investing a lot of time and resources. In addition, the information provided in the reverse auction provides real-time ranking information that sustains activity during the competitive bidding process.
The economic and efficiency benefits of e-sourcing and online reverse auctions are proven. However, implementation of the process requires a technology partner that understands how to source for telecom services with established processes and automated e-sourcing technology.