Last Friday, we presented the current Use of Auctions policy in place at the company of one CPO Rising’s reader’s. Today, I’ll offer some in-line commentary.

About CompanyName’s Use of Auctions

It is great to see a World Class sourcing organization put pen to paper and author a clear policy on its use of auctions. It is to the benefit of the sourcing professionals, business stakeholders and suppliers.

As stated above (the Use of Auctions shared here is part of a larger eSourcing Code of Conduct – if anyone would care to forward theirs or post it below, that would be fantastic), CompanyName reserves the right to conduct an Auction to conclude negotiations for this tender (our business, our right). Given the negative reputation Auctions sometimes receive in the market (face the issue head on), we would like to provide the following clarifications about CompanyName’s use of Auctions:

1. You have agreed to an eSourcing Code of Conduct when entering into this event (probably set as a mandatory “accept” click-through window before the supplier can view the RFx). The rules stated within that Code were not exclusively focused on Supplier behavior, but CompanyName’s behavior as well (what is good for the goose… but it serves as a reminder that CompanyName wants to conduct Auctions in a fair and consistent manner)  If you feel that CompanyName has violated its stated behaviors, you may contact CompanyName’s eSourcing management at eSourcing@CompanyName.com (Policies are only as good as how well they are followed. Internal process reviews can help ensure policy compliance and also identify areas for process improvement. The possibility of external audits is a strong mechanism for ensuring proper behavior. I am not sure many suppliers would actually pursue this for fear of retribution, but giving supplier participants a voice is quite empowering and I am sure goes a long way towards changing the view of Auctions at least as used by CompanyName.)
2. Unless stated, CompanyName does not award strictly on price (Using eSourcing and Auctions are not for price only evaluations. This reiterates that key point and general misunderstanding in the market – great! Also, they can award based on price – it can be appropriate.). The outcome of the Auction is one factor in the CompanyName sourcing decision. Suppliers will be selected based on ability to meet total supply program objectives including Total Cost.
3. CompanyName’s objective in concluding negotiations with Auctions is two-fold (1. Superior pricing, based upon bid transparency 2. Speed):

• To create transparency into market pricing for CompanyName – transparency that we believe also benefits Suppliers. In traditional negotiations, a back and forth engagement occurs with a push for the Supplier to improve pricing with no transparency as to the competitiveness of pricing on the table. Therefore, Suppliers generally don’t know where they need to be with pricing (If I’m a supplier, I want to know what it takes to win the business and have a clear understanding of how competitive we are). Furthermore, if a Supplier loses business based on the price component of Total Cost, they don’t know where the market pricing was so they can assimilate the data into their pricing models (Get smarter, become more competitive than we are today).  Auctions provide transparency to where pricing needs to be and where the market is for Suppliers (Yes! Great stuff here – as I discussed in #10 on this post, suppliers can capture invaluable competitive/market information when they participate in an Auction ).
• To accelerate the negotiation process (speed and efficiency, all parties win). Traditional party-to-party negotiations require significantly more time than Auctions (one-to-many negotiations can be painfully protracted). In some cases, weeks versus hours (In some cases months. Why would you ever want to extend this process? This is a major justification for eSourcing 2.0) We believe that this results in less time investment for suppliers overall (And, lower cost of sales, can ultimately translate into lower bid prices). Additionally, it allows us to award contracts much quicker than traditional negotiations, so winning Suppliers receive business sooner (Yay!).

How does this policy compare to your company’s eSourcing Policy? Does your company even have a policy? What do you like about this policy? What would you change?

Anyone else care to share, compare or contrast?

Postscript I: It was hard to find another policy image, hence the reuse

Postscript II: We will be back on Tuesday.

Tagged in: eSourcing, Sourcing, Strategy, Technology