A recent article from the Sourcing Force newsletter listed twelve symptoms or indicators that your organization might be ready for a procurement transformation. According to the article, procurement organizations with five or more symptoms were probably ready.
What does Reverse Auctions mean ?
In a regular auction, buyers place a price on an item, and the buyer who places the highest bid usually wins the item.
With a reverse auction, the opposite is true; sellers compete to place the lowest bid. A reverse auction introduces a degree of competition between sellers in a bidding process.
Check out Sourcing Force RFx Module
Indicators showing you should make reverse auctions
The very first indicator, reverse auctions have become a strategy and not just a tool or tactic in a broader sourcing program, made me pause. I had to think about what that meant before I could even move on to number two. Reverse auctions have become standard practice in procurement organizations and serious procurement groups everywhere are trying to become more strategic, but the question is: Does everyone agree on what strategic sourcing means?
Believe it or not, I think I found the answer in the dictionary! According to the 2021 Random House Dictionary, the distinction between strategy and tactics in military usage is that strategy is the utilization, during both peace and war, of all of a nation’s forces, through large-scale, long range planning and development, to ensure security or victory. Tactics, on the hand, deal with the use and deployment of troops in actual combat.
Now, not EVERY organization thinks of procurement as waging a war on cost but, more often than not, the war analogy works. Companies are trying to kill the competition. They fight to dominate the market so they can protect or expand their bottom lines.
So, how do you know if you’re using reverse auctions strategically? Per the definition, think large-scale, long range planning. Do you know enough about your spend to know that you don’t have multiple purchasing silos that could be consolidated to leverage better pricing and limit your supply base? Do you plan auctions as a reaction to an increase in cost or are you continuously projecting price levels and availability so you can predict pricing and adjust your budget, extend contracts, find new suppliers, or run an auction to take the best advantage of fluctuating supply markets? You also want to make sure that you are always looking for new tools, technologies, and methods to reduce manual labor and accelerate cycles times within the procurement process.
Check out Sourcing Force Procurement Suite
What’s your strategy for becoming more strategic? The good news is you can gradually become more strategic just by changing the way you think. Try broadening your procurement scope in a single commodity, demonstrating results, and then doing it again for another commodity or next time try including a broader section of the company for the same commodity. Keep doing these things and you and your procurement organization will become incrementally more strategic.
Also, keep in mind that in the war against cost, the supplier is NOT your enemy. Suppliers are your allies. So a good war strategy incorporates attitudes and technologies that support collaboration with your supply base.
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