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Breaking an IT Procurement Myth: Utilizing the Online E-Auction for IT Accessories

March 21, 2017 No Comments

Featured article by the following authors: Craig Kane, A.T. Kearney, partner, Anshuman Jaiswal, A.T. Kearney, manager & Shiven Khosla, A.T. Kearney, associate

It is at first hard to understand why more and more companies do not rely on the reverse e-auction process to source IT accessories. However, upon closer examination, it is revealed that there are several myths pertaining to e-auctions that prohibit companies from truly understanding and employing this method. First, the online reverse e-auction process is commonly believed to be long, arduous, and complicated as compared to the traditional request for proposal (RFP) method. Second, the trustworthiness of the process is often called into question, with detractors claiming that it does not sustain savings. Finally, there are claims that it is only fit for markets with many qualified suppliers as well as commoditized products where price is the distinguishing factor. These myths, as they stand, are not true – such claims are easily demolished through strong management practices and adaptation of the latest e-auction technology platforms.

So, what exactly does it take to execute e-auctions quickly and efficiently to lock in best-in-class pricing? Practice and training. It is essential that the internal team leading the procurement initiative has an understanding of the e-sourcing tool and its functionalities. The latest e-auction software in the market provide a host of capabilities and tools such as pre-auction surveys to collect detailed information about products and services, timed auctions, auto-extensions, pop-up messages, and more. These capabilities make it easier to communicate with suppliers and conduct all pre- and post-auction activities (e.g., surveys, etc.) in one centralized location. Such software is created to be intuitive and easy to use – it should take no longer than one week for a team to become familiar with the tool and its capabilities. Proper training is vital to help ensure that the process is trustworthy and secure. The e-auction software’s features, if rightly implemented, also help to ease suppliers’ worries and increase their confidence in the e-auction’s capabilities. They enable the seamless capturing and sharing of information. Such blending of service levels and quality considerations with pricing dimension makes the overarching process extremely effective and results-oriented. Once an understanding of the system and its functions is developed, the e-auction process can cut project cycle times by up to 50% compared to traditional sourcing techniques, clearly disproving the claim that the process is tedious and time consuming.

To ensure a trustworthy and continuing relationship with suppliers, keeping them engaged throughout the process and maintaining open lines of communication are critical. Questions will undoubtedly arise during the process, and keeping all suppliers updated will define how successful the initiative is. Through the e-auction portals, suppliers are able to receive real-time feedback on the relative competitiveness of their bids. As compared to an RFP where only one or two rounds of feedback are given throughout the whole process, during an e-auction, suppliers can bid and change prices as many times as they want during the e-auction period. From past experiences, bids have been submitted and updated upwards of five to six times per e-auction, leading to higher savings opportunities. In one such recent engagement with a large scale consumer products company, we were able to achieve over 10% savings by e-auctioning commodity low-margin hardware and software accessories, as opposed to the expected 4-5% average savings from RFP processes.

There exists also the argument that e-auctions only work well in large markets where price is the main factor. In fact, e-auctions work extremely well even in concentrated supplier markets, such as the markets for computer accessories and other hardware, as well as for situations in which price is not the only consideration – e.g., computer software products that may require VARs installation and other services. In such cases, the process can be extremely effective to identify suppliers that are more competitive is one product category over the other. Companies can even choose to stay with the same set of suppliers and only alter buying behaviors based on the results of an e-auction in order to drive higher efficiencies. Throughout the process, companies are also scored on dimensions apart from price. Pre-auction surveys can probe factors such as service level agreements, shipping and delivery services, and more, which all factor into the final supplier decision. And because sourcing needs will change with time due to shifts in the buyer’s needs, the e-auction process is one that should be repeated on a regular basis. Best-in-class practice is to conduct an e-auction annually in order to monitor pricing and product changes. Since e-auctions take less time to conduct and are simpler to carry out than RFPs after familiarity with the tool is gained, periodic execution is far easier to enforce.

We have seen success with online reverse e-auctions, in particular for sourcing IT accessories purchased through VARs. For companies looking to capitalize on the many benefits of this method, the first step is to find the right product for the initiative. Once the appropriate software is selected and internal teams trained, an appropriate product catalog must be created that is representative of the company’s annual procurement needs. Suppliers must then be trained in the process before a formal e-auction can take place. Following these steps, IT procurement will benefit greatly. Savings ranges seen from these e-auctions are typically higher than would be achieved than traditional sourcing processes, and these savings are achieved in a shorter period of time as compared to other methods. It is thus evident that online reverse e-auctions can be an extremely efficient and effective tool in the sourcing process that should no longer be overlooked.

Authors:

Craig Kane is a partner with A.T. Kearney’s Strategic IT Practice. He is based in Colorado.

Anshuman Jaiswal is a manager with global management consulting firm A.T. Kearney. He is based in New York.

Shiven Khosla is an associate at A.T. Kearney. He is based in New York.

The authors would also like to thank Charlene You for her contributions to this article.

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