The following is the second in a series of excerpts from David Wyld’s Blog The Reverse Auction Research Center. David will be a guest on the PI Window on Business Show on September 7th, 2010 at 12:30 PM EST to talk about the evolution of Reverse Auctions including their viability as a procurement tool in today’s increasing globalized marketplace.
According to a just-released research report subjecting everything – every category of spending – to reverse auctions may be the best approach to produce significant – and continuing savings. Thus, many organizations – both in the private and public sectors – should take a fresh look at their procurement practices and see how the Comprehensive Auctioning concept may indeed be a well-advised strategy for these challenging economic times.
What can – and should – be procured through reverse auctions? Should you just buy what your company needs in non-essential areas, such as commodities, or should you expand the scope of what you procure through competitive bidding – perhaps a great deal? What is the proper percentage of your procurement spending that should be channeled through a reverse auction e-marketplace to maximize the effectiveness and efficiency of your organization’s spending? Indeed, is there a limit? Could it be that almost ALL of your procurement budget should be competed through reverse auctions – and what would such a bold move mean both for your internal operations and for your supplier base?
Newton, Massachusetts-based ChainLink Research (http://www.clresearch.com/), one of the most respected consultancies and research operations in the field of supply chain management, recently released a ground-breaking report entitled Comprehensive Auctioning: Broadening the Scope of Reverse Auctions. It was authored by Bill McBeath, and you can read the entire article at the link below:
Comprehensive Auctioning: Broadening the Scope of Reverse Auctions (http://www.clresearch.com/research/detail.cfm?guid=DD20BFB6-3048-79ED-9937-AB76F78BD369).
In this fascinating report, McBeath makes the case for what ChainLink Research terms “Comprehensive Auctioning.” ChainLink Research defines this approach to using e-auctions as being comprehensive in two important ways. First, this approach means using auctions in a comprehensive manner for all – or almost all – of the goods and services that an organization buys through its procurement operations. Secondly, and just as importantly, organizations must be comprehensive in their preparation of specifications for what is to be procured AND the follow-through to make certain that the quality of the goods/services being purchased meet or exceed these strict specifications.
In the ChainLink Research report, McBeath discusses the benefits of this “auction first” (or in truth, “auction only” approach) and details the positive results that this aggressive, reverse auction-based procurement strategy has produced for two large companies. Contrary to those who would argue that reverse auctions can only produce short-term cost savings, ChainLink Research found that the two large companies they tracked for this study produced double-digit, year-over-year savings across their procurement spending. They also found that by aggregating procurement buys, the companies involved were able to both simplify their contracting processes and produce competition – and significant savings – in areas that had been formerly sourced by incumbent suppliers – in one case for decades!
Furthermore, in over seventy acquisitions of “mission-critical” production items that were procured by one of the companies on a “trial basis” from the winning bidders, not one of the chosen suppliers failed to deliver products that met or exceeded one of the subject firm’s strict product specifications.
To access this post in its entirety, visit David Wyld’s Blog The Reverse Auction Research Center.
Remember that David will be a guest on the PI Window on Business Show on September 7th, 2010 at 12:30 PM EST to talk about the evolution of Reverse Auctions including their viability as a procurement tool in today’s increasing globalized marketplace.