The ‘Taxi or Car?’ Dilemma: When to Manage your Own E-Auction Programme, and When to Leverage External Skills.

Introduction

One thing never changes in business, procurement professionals will always be constantly seeking ways to optimize their processes, drive cost savings, and enhance supplier relationships. E-auctions are a powerful tool in achieving these goals, but they are often underestimated and misunderstood, consequently procurement teams have sometimes shied away from using them. True they are not appropriate for all circumstances, but there is no getting away from the fact that when done well they improve procurement outcomes by promoting transparency and competition, ultimately benefiting both buyers and suppliers (not to mention the impact a well-run programme can have on an organizations economics).

However, when it comes to e-auctions, one crucial decision needs to be made: should you opt for managing your own e-auctions or leverage the skills and experience of external providers ‘managed’ services? Each approach has its distinct advantages and disadvantages, and in this article, we will explore the differences between these two procurement strategies and recommend an approach that you can tailor to your own circumstances.

Firstly, if you are completely new to E-Auctions, you might find this article helpful:

First Principles: Self-Service Auctions

‘Self-service’ or self-managed e-auctions, are those where the company subscribes to a SaaS based Auction platform (or one embedded in their E-Sourcing platform) and the procurement team manage their own events, including inviting/training suppliers, building the event strategy, structuring & configuring the event and supporting bidders through the live event and afterwards into the debrief and award phases.

 In order to minimize risks and optimize the savings potential this approach requires some skills and experience with the team...

• Project Management – managing the tasks, timelines, risks, colleagues, and suppliers to deliver an optimal event/result.

• Event strategy – what are the best options to deliver the objectives (which may go beyond simple price), when to use multiple lots, when to use a forward or a reverse, or a Dutch or a Japanese or a Brazilian auction for example.

• Event configuration – when to indicate rank versus lead-bidders price, what weighting inputs to apply to quality versus price to get the correct output, what decrements, and minimum bids etc. to have an optimal result.

• Bidder support – providing training, FAQs, support prior and very importantly during the event (removal of any erroneous bids etc.), this element is often overlooked or underestimated and can impact suppliers experience greatly. 

• Ethics – Being (and being seen) to be an ethical professional in all aspects, of the event, from support, to access to supplier’s prices to proxy bidding and awarding (to the winner not the favourite), are all critical to the bidder trusting the process.

Now whilst it’s true these skills are critical to get the best results (an experienced project manager will always develop a strategy that beats an inexperienced one), the good news is that these are ‘relatively’ easy to learn, and you can build an internal capability with the right resources, training and application.

However, if you don’t have the right resources, time, or enough events to warrant the investment in a subscription plus team training there is another way…

‘Managed’ E-Auctions

So, if self-service auctions are analogous to buying/leasing a car and driving it yourself to get from A-B, then ‘managed’ e-auctions are more akin to engaging a taxi service and driver for your transportation requirements. Within this procurement approach, a third-party technology or service provider that specializes in e-auction software and event project management ‘takes the wheel’ on behalf of the buying organization. They manage the project and work with your team to optimize the entire e-auction process.

This method also removes the necessity for the organization to make an investment in dedicated auction software. Instead, the specialist technology provider uses their own technology, and the events are priced on a fixed price based on the specific event (or a bundled set of events, which typically also unlocks discounts).

Some providers also provide event success guarantee for managed events, whereby if you don’t make a saving, they will manage another event for you free of charge.

 When evaluating the advantages of managed e-auctions, one can consider the following key aspects:

• Expertise and Guidance: Managed e-auctions provide access to experienced project managers, helping you navigate the intricacies of the process effectively.

• Skills transfer: Your team can be trained as the event progresses and shadow the project manager to build internal competence and confidence.

• Time and Resource Savings: Outsourcing to experts frees your team to focus on core tasks while saving time and resources.

• Competitive Advantage: Managed e-auctions lead to more competition, more bids and ultimately better, and more sustainable, cost savings.

• Quick Implementation: Managed e-auctions can be implemented swiftly, capturing immediate cost savings.

• Focus on Core Business: Outsourcing allows your organization to focus on core activities and strategic goals of the project.

Selecting the Right Approach for You

When choosing between a managed or self-service e-auction approach the right choice depends on several factors, including an organization's size, existing expertise, resources, and specific procurement goals. For example…

There is Another Way

Of course (without stretching my metaphor too far!) in reality many of us own cars but still choose to use a taxi when the circumstances suit us. Likewise with auction programmes, combining both approaches into a ‘hybrid’ model can be the optimal solution for many. In this approach typically:

• Your team are trained and manage the easier (lower value/lower complexity/lower risk… i.e., lower opportunity) events.

• You bring in the external team for the more complex/riskier/higher value/higher opportunity projects.

• Over time you can start to bring more in-house as your team’s skills, confidence, competence and experience develop.

• This approach typically manages the most events, more successfully and importantly unlocks more value, faster.

Summary and Conclusion

Ultimately, your choice should align with your organization's goals and resources. However, running only managed events or only self-service events may result in suboptimal use of e-auctions and thus leaving value on the table. As a result, many leading procurement leaders opt for a hybrid strategy. They leverage managed e-auctions for critical, high-value procurements and self-service e-auctions for routine or lower-value transactions.

Regardless of the approach chosen, organizations should continuously evaluate and fine-tune their e-auction strategies to adapt to new innovations in the toolkit, achieve their procurement objectives and drive a significant and sustainable impact to the organization's economics.

About Dan

Dan is a co-founder at TechConnect:ME, he has over 20 years' experience in the procurement and technology space, including leadership roles in some of the top tier technology providers. Dan has worked across the Middle East for 15+ years and is an MBA with further executive education in Digital Strategy/ Transformation (MIT), FinTech (Harvard), Leadership (Oxford) amongst others. You can catch Dan on his LinkedIn at: https://www.linkedin.com/in/dan-quinn-2604951 or his email: Dan.Quinn@techconnectme.com.