More thoughts on e-auctions (and the BravoSolution event slides)

As we’ve already mentioned, just before the Jubilee weekend we saw the third of the BravoSolution Real World Sourcing “expert briefing series”, this one delivered by Guy Allen of 4C Associates and titled “Maximising the benefits of e-auctions”.

You can download the slides now here, and don’t forget you can take the on-line test and enter the Bravo-sponsored competition, with a scholarship of £2500 going to the winner.

We won’t go on again about how genuinely expert Allen is, but it was an excellent session and I think probably caused more debate than the previous two, successful though they were. After we wrote about it here, we saw some stimulating debate amongst our commentators, well worth reading.  Much of it was around the perennial knotty issue; do auctions subvert or even prevent close buyer / supplier relationships?

One school of thought says that leverage and competition will get the best results in virtually any sourcing situation. The other says that auctions will inevitably harm relationships, with consequent costs far greater than the apparent savings from the auction process.

I have some sympathy with both sides of the argument actually. But before we get into that, there’s one other aspect that concerns me somewhat about auctions – which actually didn’t really come up in the session. I remember another very experienced auction expert (ex GE) telling me years ago that he “didn’t like auctions where we’re basically auctioning someone’s wages”.

When the wage element of the price is very significant, that’s what we’re effectively doing. And when that’s combined with a market as sensitive as councils contracting for social care for instance, I have some qualms when I hear of local authorities auctioning for this type of service. If it means minimum wage staff aren’t even paid for their travel time between their clients’ homes... Well, I wouldn’t like to be a recipient of those care services in a few years time.

But that aside, let’s go back to the relationship versus leverage issue.

In general, the procurement profession tends to over-rate the value and real outputs from “supplier partnerships”, or "supplier relationship management". How many organisations have really implemented SRM with tangible results and benefits, despite the best efforts of experts such as Future Purchasing and State of Flux?

For the supplier, “partnership” too often means the excuse to overcharge, or an expectation of more business. Meanwhile the buyer wants both “never beaten” pricing, and all the latest innovation.  You can see how the discrepancy between those two positions causes SRM initiatives to fail!

So partnership or SRM has to mean getting something from the supplier that you can’t get through normal competitive processes. If you can’t define what that is, and measure the benefit, then it probably isn’t real. And if you can measure the benefit, then Allen would say you can take that into account in an auction processes

On the other hand, if there really is a chance of getting innovation or something with real added value / uniqueness from a supplier, then it is hard to achieve that if they’ve just spent half a day being beaten to a pulp in the auction room.  Just as SRM can bring false hope, so it would be naive to think you can always enjoy the benefits of a highly competitive, leveraged process and enjoy a favoured customer status with that supplier.

Taking everything into account though, I’m with Allen when he says that most organisations should use auctions more than they do. That doesn’t mean everything, or (as he said last week) setting arbitrary targets for volume of spend being auctioned, but it does suggest that the key words to remember in all of this should be – “why not”?

Voices (3)

  1. Dan:

    I would say that this is one of the reasons more people don’t use e-auctions:

    http://news.stv.tv/scotland/100403-scottish-councils-admit-using-e-auctions-to-acquire-services/

  2. PlanBee:

    Its not auctions that lead to staff not being paid for travelling time, its the competitive market. If you or your organisation think it unethical to not pay for travelling time, then this should form part of your tender document.

    And when you send out an RFP for services based on people, surely you are still tendering people’s wages?

  3. Guy:

    Thanks for the review Peter. If a suplier can deliver something that is unique (and that in turn is imperative to your organisation) then you cant auction it, as there is no competitive market.

    If it is simply valuable then value it and amend the auction accordingly.

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