We all have seen that movie. A fancy setting, a big screen on the wall, and someone standing on the podium presenting a list of valuable objects, if a person in the audience is interested in buying it, they will say their price. That’s how an auction works, right?
But have you ever heard about e-auctions? And how are they connected with the procurement process?
Let’s find it out
What’s an e-auction?
Just like its physical and more traditional counterparts, an electronic auction is a process that happens online where suppliers get involved in bidding to be granted a selling contract with a specific company. One of the biggest advantages for companies is that e-auctions occur on digital platforms creating the perfect opportunity for buyers to solicit bids from multiple suppliers simultaneously. While it might sound like something pulled out from a movie, the e-auction market is expected to grow by $2.5 billion by 2027.
Types of e-auction
Classic model
This is the most common for procurement purposes, as various suppliers are competing to obtain approval from a single business. Is the business that chooses the most competitive offer.
Dutch auction
Ideally when there’s a short time to make a decision, the very first person to present a bid, wins. As simple as that.
Japanese model
In this approach, the buyer starts with a high initial price that decreases by predetermined amounts at regular intervals,
How do e-auctions work?
Preparation
The buyer (also known as the procurer or organization) begins by defining their needs and preparing a detailed request for proposal (RFP) or request for quotation (RFQ). This document outlines the specifications, terms, and conditions for the items or services being procured.
Defining lot strategy
A “lot” refers to the set of items or services that suppliers are invited to bid on. Essentially, it’s what’s being sold. A lot of strategy is how a seller groups these items to boost competition and find ways to lower costs.
Supplier onboarding
The buyer then invites qualified suppliers to participate in the e-auction. Invitations are typically sent through an e-auction platform, which may also include a comprehensive briefing or training session for the suppliers.
Carry out the auction
During the e-auction, suppliers log into the platform and submit their bids in real time. As we have mentioned before this can be done following diverse methods.
Evaluation and awarding
This is when the business reviews the bids and selects the supplier that offers the best value, it’s worth noticing that the final choice is not solely affected by the lowest price but could include factors such as quality, delivery time, and overall service.
Post-auction
The most awaited moment, the company and supplier finalize the terms and proceed with the procurement process. Depending on the e-auction platform it may also facilitate contract management and performance tracking.
Now that we are familiar with the way e-auction works, we can discover the many benefits that this practice brings to businesses.
Benefits of e-auctions for businesses
It saves money
Ever heard the saying time is money? Well, e-auctions streamline the bidding process, reduce paperwork, and cut down on administrative costs, allowing for quicker decision-making. Less time wasted, less money invested.
More options available
Finding the most suitable supplier is a common advice for business owners by inviting multiple suppliers to bid simultaneously, e-auctions foster a competitive environment that often leads to better prices and increased quality. Trust us on this, your supply chain will become more resilient.
Transparency
A transparent bidding process where all participants can see how their bids compare with others contributes to the creation of a fair market. If everyone involved is aware of the value of good then there’s no risk of arbitrary practices.
Best practices for e-auctions
Define Clear Requirements
Ensure that your RFP or RFQ contains all the necessary information. It will make everyone’s lives easier as it helps suppliers submit competitive and relevant bids.
Prequalify Suppliers
Yes, it might be an open bid but you want to invite suppliers who meet your criteria and can fulfill your requirements. Prequalifying suppliers will save you and the suppliers time, given that it ensures that only competent and suitable vendors participate in the auction.
Choose the Right Platform
Utilize an e-auction platform with features aligned with your needs, such as real-time bidding, quick communication, and data analysis.
Communicate and keep communicating
It’s the basis for success, so don’t forget to keep open communication with suppliers throughout the process. It’s a great opportunity to address any questions or concerns right on time to avoid misunderstandings and ensure a happy auction.
Evaluate Beyond Price
While cost is a significant factor, consider other criteria such as quality, delivery time, and supplier reliability when making your final decision. The lowest bid may not always offer the best overall value.
Conclusion
E-auctions are an excellent approach to procurement that brings direct benefits to your supply chain, general efficiency, and competitiveness. Knowing exactly what e-auctions are, how they work, and why you should consider them in your next search for suppliers will help you streamline procurement processes, achieve cost savings, and build stronger supplier relationships.
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