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Hi {{FIRST_NAME|readers}},

A few weeks back, Laura Damian told us about the day nobody came to her eAuction. Suppliers ghosted the event. The savings never showed.

That piece hit a nerve (the replies proved it).

Tonight, Janice Marquardt picks up the thread with a guest post from an angle I've rarely heard anyone put this cleanly.

And she's earned the mic on this one… Janice moved from engineering into procurement, rose to become a utility's first VP of Supply Chain, and built a team that ran 2,000 eAuctions a year. She literally wrote the book on it (Transform Procurement: The Value of E-auctions). She now runs Passwall Solutions, where she's guided multi-billion-dollar eAuction program implementations.

Her take reframes the whole debate: most practitioners have a love/hate relationship with eAuctions because they're using them to replace the RFP.

That's the mistake.

The eAuction doesn't *need* to replace the RFP. But it *can* replace the “best-and-final-offer” process that comes *after* it.

That one change (run the RFP first, auction second) fixes almost everything people complain about: you keep your backup position, you protect the supplier relationship, and you true-up the bids before anyone races to the bottom.

If Laura's piece was the warning, tonight's is the fix.

Onwards!

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by Janice Marquardt

“We tried e-auctions. They don’t work, and they destroy supplier relationships.” I hear this a lot, and I agree that e-auctions can be terrible. The procurement world is increasingly about intangibles, risk management, resilience, and relationships, but an e-auction reduces the discussion to numbers. And yet, there is a component of almost every bid that comes down to numbers. 

E-auctions are (mostly) terrible when used to replace an RFP. They are useful and valuable when used as part of negotiation.

From 2000 to about 2010, e-auctions did one thing: suppliers competed against one another for the best price in a race to the bottom. Practitioners viewed them as a tool that sped up sourcing and drove costs down. E-auctions were used for commoditized materials with clear specs and interchangeable vendors. If practitioners tried to expand the use of e-auctions into more categories or more strategic suppliers, they quickly ran into damaged supplier relationships, a lack of engagement, and an angry technical team.

These early auctions were a one-trick pony, and it showed. Since that time, e-auction software suppliers have added capabilities that reflect the modern world. Modern e-auctions can use bid transformations to account for suppliers who offer superior quality or excellent customer service.

Different formats beyond the traditional English/Dynamic auction add needed flexibility based on the type of category, number of suppliers, or even the geographic region. Dutch and Japanese auctions do very well in Europe while the U.S. continues to favor the Dynamic auction. Current e-auction tools allow for suppliers to simply see colors for if they are winning or not, their bid rank, the leading bid, their position for each line or for just the total, and a myriad of other options based on the situation. AI is adding another layer of complexity to e-auction tools, creating a quicker path to an apples-to-apples bid comparison.

E-auction platforms have evolved alongside procurement’s transformation, offering a far more flexible tool than once existed.

Businesses that are successfully running e-auctions today have made a critical mindset shift: the e-auction does not replace the RFP. It replaces the best-and-final-offer process that comes after the RFP. This small change opens up a myriad of possibilities. 

By running a full RFP first, the buyer has a backup position if suppliers are unable or unwilling to participate in a negotiation. The RFP still contains all the relationship-building practices critical in modern procurement. Lastly, the technical and procurement teams can still fully evaluate each supplier’s proposal, truing-up mismatched bids, correcting errors, and only qualifying the best suppliers for the best-and-final-offer process. It is even possible to work through key contract terms and conditions ahead of the e-auction, ensuring the winning supplier will complete a contract. 

Negotiate all the intangibles ahead of the e-auction, don’t simply ignore them.

All bids eventually come down to numbers, after the other considerations are done. Sometimes only one viable supplier can meet the need, but often a business is looking for the best total value, the best total cost of ownership, and the right supplier partner.

By running an RFP ahead of an e-auction, the e-auction becomes a way to run a clean and fair best-and-final-offer process instead of a race to the bottom between whichever suppliers decide to show up.

There are four situations when an e-auction is a good option for negotiation:

I never recommend e-auctioning the key, strategic direct materials that run a business. They’re too important, too volatile, and the supplier relationships are too often fragile and political. Everyone seems to want to start with direct materials and it’s why so many practitioners view e-auctions with such contempt.

E-auctions are a great tool when applied to the right situations.