eSourcing and reverse auctions: wanted on suspicion of the murder of Supplier Relationship Management?

This is part 2 of our reporting from last week's Iasta 'user panel', following yesterday's discussion around technology adoption and implementation.

There were good questions, with thoughtful panel responses, around the topic of supplier relationships.  Surely, someone said, automating procurement, and driving for lower prices through aggressive auctioning processes, were likely to kill any ideas about forming strategic supplier partnerships?

The answers came from two directions; not diametrically opposite, but definitely different.  The first response suggested that sourcing automation and auctioning needn't and shouldn't kill strategic relationships at all.  (And, in a parallel discussion, the view was it doesn't mean the end of the need for skilled procurement staff either; it just suggests some different skills).  Auctioning for instance has moved beyond simple "lowest bid wins" to complex multi-criteria auctions and optimisation processes, with providers such as Iasta, (as well as BravoSolution, Emptoris, Intenda, Trading Partners, and others) supporting increasingly complex bidding and evaluation approaches.

But doesn't that still mean you are putting your supposedly "strategic partner" through a formal (and arguably "tactical") bidding / auctioning process?  Yes, but, according to one panellist, "that is what suppliers expect these days. It's not seen as a big negative.  You can still maintain that strategic relationship".

There was another view however.  Rather more contentiously, one panellist questioned whether SRM actually  was sometimes "just an excuse for the buyer and the supplier to avoid competition".  He saw danger in overly 'cosy' relationships and "would be very happy to put every contract through an aggressive bidding process at least every three years or so".  While he recognised not everyone shared his view, even in his own organisation, his was a pretty unreconstructed view of the benefits of competition!

So, an interesting debate, and one that left me with a question that relates to some other posts I've been writing recently as well.  Does the rapidly increasing adoption of sourcing technology, with greater and greater sophistication, just enable us to run fundamentally unchanged core procurement processes in a better and more efficient manner?  Or does it suggest a potential wider paradigm shift in the whole way in which we should view suppliers, markets, and the procurement process?

If my brain doesn't hurt too much, I will be coming back to that topic through the Autumn.

Voices (2)

  1. Andy Moorhouse:

    Hi Peter – we can certainly have a healthy debate on this topic when you present at our Winning with Procurement conference on 4 November .http://bit.ly/dgxmLN

    On the topic of “complex multi-criteria auctions” or multi-attribute auctions, a very good contact, at one of the procurement consultancies mentioned above, told me that that such auctions make up less than 1.5% of their global auction market place. .. so this format has a long way to go.

  2. Paul Howard:

    I’ve long believed that where a strategic relationship is already in existence eAuctions have to form part of an overall category sourcing strategy if the relationship is to survive. On the flip side, where strategic relationships don’t exist using eAuctions can actually lead to buyers forging strategic relationships by using them, still though, I think it has to form part of a larger strategic plan.

    I think the danger comes when eAuctions are over-used to keep squeezing price, this inevitably leads to either a loss of quality or unsustainable pricing. It also leads to suppliers either disengaging from a well constructed and managed commercial relationship or moving further along into a traditional adversarial type of relationship. Having said that of course, it depends on what sort of relationship is appropriate with one’s suppliers – purely adversarial might work just fine too! It’s definately a fine balance which can be tricky to negotiate but OGC did produce some useful guidance a while back for us public sector folks.

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