Choosing the best suppliers can be a time-consuming process, but companies that excel in this area of supply chain management (SME) can reap savings to their bottom line. The more traditional procurement process typically involves issuing a request for proposal (RFP) or request for quotation (RFQ). If you’re looking to compare several different suppliers, each would need to submit a full proposal, and negotiations could go on for weeks.
On the other hand, an increasing number of importers, exporters and transport companies are using e-auctions to find the most competitive prices for goods and services. E-auctions use internet-based technology to help select suppliers, based on price alone or on other criteria that are important to the buyer (product selection, quality, delivery schedules or volume allocation, for example).
E-auctions create opportunities for competition between suppliers, which can win buyers savings of as much as 20%. Typically, companies that use e-auctions buy in volume, so even smaller savings are worthwhile. And e-auctions can be up to 40% faster than conventional negotiations—often completed in one day.
Who Should Consider E-auctions?
E-auctions are an effective business tool for companies looking for new suppliers, new services and new efficiencies, or companies that have used the same suppliers for years and want to ensure they’re still paying competitive prices.
Choosing an auction over a more traditional procurement process might make sense for your company, especially if you’re part of a competitive market where several suppliers could provide your needed goods or services. But there are also drawbacks to consider.
5 Benefits of Using E-auctions
- An auction can help boost market transparency and efficiency. The buyer might not know what other options are available if they’ve stuck with the same suppliers for a long time. The market is constantly changing, after all. The bidding process can be transparent for optional control.
- They’re a way to compare and select from a larger group of suppliers without going through the time-consuming process of reaching out to each supplier.
- They’re a way to grow your market reach and expand buying.
- Using technology to run the process is more efficient.
4 Drawbacks of Using E-auctions
- Responders to the auction might participate only to gain information, with no intention of following through.
- You may risk losing a well-established supplier.
- You may win a low price during the auction, but the vendor may want to renegotiate before providing services.
- Technology is needed to support the auction. However, organizations such as Safal are available to support companies in this regard.
3 Types of E-auctions
There are several different varieties of e-auctions, including open, sealed bids and reverse. Selecting the correct criteria for your auction needs is critical to ensure the best pricing, data collection and to attract market providers.
- Reverse Auctions: Buyers put out requests for the goods or services they’re seeking. Suppliers then bid what they’re willing to be paid for goods or services provided.
- Open Auctions: This auction allows suppliers to select the items they desire to bid on in the auction process.
- Sealed Bid Auctions: Bidders simultaneously submit sealed bids. Information is controlled, so bidders do not know who they are competing against or what other auction participants have bid.
Many organizations find e-auctions beneficial for market analysis and data collection, and they find new suppliers that offer excellent services and low pricing. This key combination provides a competitive advantage and can expand partnerships. E-auctions, with the right technology base, create a new way of doing business, but require strategies to ensure success.
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