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How Online Auctions Can Bolster Your Sourcing Strategy

Since online or e-auctions came onto the procurement scene in the late 1990s, their use has been increasing by at least tenfold each year. This figure...

Freddie Pierce
|Jul 30|magazine12 min read

Since online or e-auctions came onto the procurement scene in the late 1990s, their use has been increasing by at least tenfold each year.

This figure from the Chartered Institute for Purchasing and Supply is evidence that while most e-auctions hitting the headlines are those involving public sector organizations, private sector usage is also growing massively, with firms such as Sainsbury’s (for shop fittings) and Asda (for soft drink suppliers) using the e-procurement system.

E-auction services provider BravoSolution says it conducts more than 5,000 auctions per month for its global clients, seeing an average saving of between 10 and 15 percent. It told Supply Chain Digital that during June 2010, its clients’ auctioned categories included: building works, business travel, car rental, cleaning equipment, machinery and plant, office products, IT hardware and services, maintenance services, marketing and advertising, spare parts and transport and logistics.

BravoSolution account principal Claire Sexton says: “Over the past 10 years we have seen a significant step change in the approach that organizations are taking with the use of e-auctions. In the early days e-auctions were seen as a tool to be used on an ad hoc basis for quick-win cash savings; however, attitudes have now changed and many organizations are taking a strategic approach to factoring e-auctions into as many procurement projects as possible, with a view to delivering wider savings and capturing best value.”

In 2009 NHS Supply Chain conducted 54 e-auctions, one of which, for specialist mattresses, saved more than 66 percent on rental costs. This is just one of thousands of recent examples that demonstrate the rewards that online auctions can bring. Derby City Council saved more than £250,000 on mobile phones in just 52 minutes, a saving of almost 40 percent on the original projected cost. While 40 organizations across local government, health and central government saved £10.5 million on IT hardware through an e-auction.

BUYER OPPORTUNITIES

Islington Council in London uses e-auctions for the procurement of products, including utilities, computer hardware and mobile phones. The borough’s head of strategic procurement, Cliff Youngman, says: “The main benefit of using e-auctions is the opportunity for the buyer to force down suppliers’ prices after they have satisfied minimum quality criteria. Using an e-auction platform also provides a transparent audit trail of price reduction, and can help inform future
purchasing decisions.”

Warrington Borough Council has used online auctions to source wheeled refuse bins — in collaboration with other authorities — and for a managed service for temporary workers. It said on each occasion the e-auction generated savings of up to 25 percent. Stuart Sykes, head of strategic procurement, said: “It is essential to ensure that the evaluation criteria for quality aspects are well defined, weighted and factored into the auction platform. It is also advisable to warn tenderers not to reduce prices beyond the point which they can sustain.”

London’s Brent Council has used e-auctions for the acquisition of IT hardware, including PCs and servers. “E-auctions offer ease of collaboration, transparency of the bidding process for all parties and resultant driving down of the contract costs as bidders compete within the auction timeframe,” says Alison Matheson, head of procurement and risk management.

Dave Starling, head of procurement at Bromley Council in south London, said that e-auctions have saved it money, but had the additional benefit of allowing the council “to tap into sector specific support and expertise”.

Meanwhile Russell Mercer, head of procurement at Yeovil District Hospital, said that in the National Health Service (NHS), trusts are using NHS Supply Chain and Buying Solutions contracts where e-auctions have been used to select suppliers for items such as IT and catering products.

USING E-AUCTIONS WISELY

However, not every procurement programme is compatible with e-auctions, as Youngman explains. “There is a danger that some suppliers may be so keen to win the business that they actually lose money, which means the service you receive is poor or, even worse, they cannot deliver. E-auctions should be used wisely. Generally they work well for supplies contracts such as buying commodities, or for procurements that do not have a huge service element.”

London’s Merton Council believes e-auctions can be inappropriate for certain services.

A spokesman adds: “You have to train the suppliers in how to use them which has to be factored into your timescales.”

While online auctions are not applicable for all contracting organizations, the uptake is still rising as auction providers continue to invest in the technologies required to support competitive and successful events. However, there are thoughts within the industry that e-auctions are not being used to their full potential due to fear and reluctance to make the transition to using them; but in these times of recession, they could provide a perfect solution to making any necessary cost savings.