Publisher’s Note: Today’s article is a guest publication from Jacob Larsen, Director of Digital Procurement at Maersk Group, renowned procurement technologist and eAuctions expert. Jacob is also a longtime friend of the site, speaker at our in-person and digital events, and as of today, a newly published author!!! I also recently interviewed Jacob on our new podcast. As you know, Ardent Partners is happy to review and feature guest publications from authors across the procurement and supply management industry. If you or someone you know would like to become a guest contributor, please contact us here.
A Practical Guide to E-auctions for Procurement by Jacob Larsen
Just a few months back in October 2020 Wilson and Milgrom from Stanford University were awarded the Nobel Prize in economics for their contribution to auction theory and for their practical application of new auction formats on some of the most complex negotiations that are taking place in the world when various broad band licenses have been put out for bid via spectrum auctions.
As a procurement practitioner that have worked with e-auctions for many years I find it very interesting that some of the smartest people on the planet apply auctions on some of the most complex market designs and even wins the most prestigious prize of all (The Nobel prize) for their efforts, while we in the procurement community are still struggling with realizing the full potential of e-auctions – a market driven negotiation form available to the procurement community!
Listen to Jacob Larsen on the Procurement Rising Podcast today!
In my new book, which is published today on 23 February 2021, I am describing why it is like that, and I also identify what it takes to become successful with e-auctions for a procurement organization. The book is the preliminary result of my work with e-auctions over the last ten years where I have been responsible for a global e-auction program with more than 10,000 e-auctions done over the years.
In my experience it takes three things for a procurement organization to become successful with e-auctions.
The first point is to adopt a sustainable and fair approach to e-auctions. This includes a clearly defined policy for e-auctions including commitment to the outcomes of e-auctions, as well as procedures that reflects the concept called procedural fairness in e-auctions which ensures a sustainable approach to e-auctions. Many procurement teams are tempted by the convenience of flexibility or the short-term win by continuing negotiations after an e-auction is done. This is a mistake and will result in loss of credibility for the e-auction program, which means that suppliers going forward will no longer submit their best bid in an e-auction as this is no longer where they win or lose the business. Long-term that is not sustainable as one of the benefits of the e-auction is that it ensures the optimal price in the market by determining the true market value.
Secondly, a procurement organization need a strategic process for e-auction design, similar to the processes most organizations have for strategic sourcing. It is important for the long-term success of an e-auction program that the organization have a process that guides the e-auction design process and ensures that all relevant questions are considered relating to the specific market situation that the individual auction design have to address. In my book I am introducing a six steps process that any procurement team can adopt independent of what technology solution they use for e-auctions. The process also works as a checklist that ensures that all relevant parameters for the auction design is considered and in the right sequence. Implementing a proven process for auction design will also provide the procurement team with the confidence required to take use of e-auctions beyond tail spend tenders and into the area of more strategic spend where the value generation potential is significantly bigger.
The third and final thing it takes to become successful with e-auctions for a procurement team is to accept that change management never stops! Being successful with e-auctions is a lifestyle, not a diet for a procurement organization. It takes a new mindset to accept that the selling never stops when it comes to explain the value e-auctions brings to your procurement organization. You always need a plan for change management activities, trainings, awareness sessions, newsletters, KPI’s etc. are things that always have to be in place to ensure adoption of e-auctions in a procurement organization.
For most procurement organizations cost is one of the key priorities for 2021 and for many that also means an increased focus on e-auctions. My book is a good place to begin or re-launch your e-auction drive. It is available in most online book stores, but you are also welcome to reach out on email (Jacob.larsen@maersk.com) or Linked-in directly if you are interested in buying the book for your procurement team and use it to accelerate value creation with the use of e-auctions.
You can purchase the book via Amazon on this link: https://www.amazon.com/Practical-auctions-Procurement-Sourcing-Negotiation/dp/1398600288
