Friday Rant: Just Get a Platform! Reverse Auctions, Sourcing Optimization, Unintended Consequences

I got an email a few weeks ago from a sourcing director at a major company who had read a paper we wrote weighing the pros and cons of reverse auctions and more sophisticated negotiation formats, including sourcing optimization. He wanted to connect to discuss our analysis further. Finally, after going back and forth and trying to find a time to talk, we caught up for a few minutes. I was planning to give him my sales pitch for sourcing optimization and why auctions should only be used (if at all) in very specific supply and commodity market situations. But rather than launch into this near religious sermon on sourcing tools, he caught me off guard with what he was after.

This gentleman was certainly sold on the fact he wanted to investigate the market -- and we talked about a pretty deep shortlist of providers, all of whom who could probably do the trick. He asked smart questions about more flexible negotiation, bidding and evaluation approaches. We talked about how these might factor into sourcing categories that fall somewhere in between the "leverage" and "partner" quadrants on a sourcing 2x2 matrix. But what he was really after was something more philosophical -- whether he needed a sourcing platform at all, because of the danger in damaging relationships through the impersonal nature of virtual communication and information gathering.

This guy was clearly old-school procurement. But he was anything but superficial in his concern for reverse auctions and general online negotiation. In his world, which involved buying largely catalog-based SKUs, many of which had significant price volatility due to underlying commodity movements in the past 12 months, suppliers sometimes held the upper hand, but were not negotiating from a position of strength, instead wavering in uncertainty themselves. Discovering a supplier's position and understanding of the market in a face-to-face or phone conversation yields signals and clues to the best negotiation and contacting approaches. And this is often lost in the digital world of online sourcing, he suggested.

He's right when it comes to basic e-sourcing platforms and reverse auctions. But I was finally able to make the case that sourcing optimization can provide an even more effective means for market discovery without creating an impersonal layer. If anything, these tools can serve as a catalyst for creating a list of possible outcomes and award scenarios that a buying organization and supplier might never have realized without the tool to begin with. And then, face-to-face or phone communication can once again take over to ensure the true human element in the relationship.

We can all afford to learn that sometimes rather than jumping to selecting a tool -- or identifying the need for a tool -- we should look at the outcomes we're after in supplier relationships and let the desired end result guide how we want to engage and if/when we want to introduce technology into either an information gathering/collection effort or the negotiation component of setting an agreement. I think sometimes we forget that our job in procurement is ultimately best served by leveraging relationships to drive outcomes, rather than jumping to the end-game and just assuming the means (e.g., process, technology) will get us there alone.

Jason Busch

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