eAuction is an efficient tool for the price negotiation stage of the sourcing process. The sourcing team defines the scope of the auction and invites selected suppliers to participate. Suppliers submit their bids according to predefined terms and conditions. The names of participating companies are not shared to other participants during the auction. The tool delivers significant time and cost savings.
After an RFx process and an initial assessment of the received information, the sourcing team typically creates a shortlist of potential suppliers. Negotiations then continue with suppliers that have met the requirements and appear to be suitable potential partners. This is usually also the stage when more detailed price negotiations begin.
Negotiating prices with potential suppliers using traditional methods can be slow and time-consuming. Negotiations are carried out by phone, email or in meetings. When one supplier submits an updated bid, the sourcing team often wants to give the other suppliers an opportunity to improve their bids as well. The negotiation phase can take days or even weeks, and it can sometimes be difficult for the sourcing team to determine when to conclude the negotiations.
Price negotiations are usually of interest to both the sourcing team and potential suppliers. How can you reach the true market price level that both parties can be satisfied with?
How to use eAuction
eAuction is an efficient way to run price negotiations. The sourcing team defines the scope, requirement and terms in advance and assesses differences between suppliers, such as quality, payment terms and freight costs. The auction is held at a pre-announced time.
During the auction, suppliers have the opportunity to submit their best bid. An eAuction is not a race against time, and suppliers are always given sufficient time to submit their bids. The tool ranks the submitted bids based on overall value, taking into account all predefined factors that affect the comparison. The supplier with the best bid wins the auction, provided that the other conditions defined by the sourcing team are met. The names of participating suppliers are not shown in the tool.
Preparing the Auction
The sourcing team defines the scope of the auction and the participants.
- The scope and requirement are defined precisely so that suppliers can prepare their bids carefully.
- Only genuinely potential suppliers are invited to participate in the auction.
- Differences between suppliers can be taken into account in the eAuction settings.
Bidding
Suppliers receive the eAuction invitation and participation instructions. It is recommend sending the invitation well in advance to allow sufficient time for careful preparation.
- Once the auction begins, suppliers can submit their bids.
- Suppliers cannot see the other participants. They can improve their own bid while the auction is in progress.
- A typical duration of an eAuction is usually relatively short (e.g. 15–30 minutes). For certain auction types, the duration may be extended through overtime periods.
After the eAuction
The sourcing team reviews the submitted bids and confirms the results.
- The successful supplier is invited to final contract negotiations. The other participants are informed of the outcome.
- All bids submitted during the eAuction are binding.
The sourcing team selects the appropriate eAuction type and settings based on the results of the RFx process and the market situation. The selected auction type determines what information suppliers can see during the auction. Depending on the sourcing team’s preferences, participants may be shown information such as their current ranking, the level of the leading bid or a reserve price set by the sourcing team.
Benefits
Versatile
eAuction adapts flexibly to different competitive situations. The sourcing team can choose from several auction types to find the best option for each situation and configure the auction settings according to the objectives and the market conditions.
Easy for Suppliers
Participating in an eAuction is straightforward for suppliers. They can submit their best bid through the tool and improve their position in the competition.
Controlled Process
The sourcing team prepares the eAuction based on the information gathered during the RFx process. Any differences between suppliers are taken into account in the eAuction settings. During the eAuction, the sourcing team can monitor how the situation develops in real time.
Effective Price Negotiation
An eAuction helps identify the true market price level in every situation and ensure competitive pricing. Dynamic price negotiation saves significant time for both the sourcing team and participating suppliers.
Widely Used
eAuctions are a widely used approach. Noventia’s experts are happy to support you with your first sourcing processes.
What Is a suitable scope for an eAuction?
Almost any sourcing event and scope can be suitable for an eAuction.
Requirements for a successful auction are:
The volume of the sourcing project must be large enough to make participation attractive to suppliers. However, there is no specific amount, as this also depends on the size of the participating companies.
There must be more than one supplier to create genuine competition. However, even two suppliers can create effective competition when the opportunity is attractive.
The sourcing team must be able to define the scope and terms of the sourcing project as precisely as possible in advance, so that suppliers clearly understand what they are submitting binding bids for.
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