The use of electronic auctions in procurement is not unpopular these days, though it is definitely more common in the direct materials area. A few years ago my job was to promote the use of e-auctions and to illustrate how it could become one of the valuable tools for procurement professionals in Asia. E-auctions in procurement is like the reverse of how we use eBay or any online shopping auction portals as regular consumers. When we shop on eBay, we are facing a few days or even weeks of deadline to bid for the merchandise we love. We have to check back often to make sure whether we are still in the lead or if not, keep bidding with a higher offer. We now make use of the same theory and technology to bring all suppliers together (virtually) to compete for the buyer’s business volumes. The only difference is that a lower bid will be more competitive, meaning the buyers will award business to the supplier offering the lowest price. It’s that simple.
Some procurement clients are against e-sourcing. They think that the suppliers are not ready. They think that it will send a wrong message to the community saying they only care about price and nothing else. They are worried about their relationships with suppliers being impacted. They are also concerned over technological instability, as well as online integrity issues. These are all valid concerns, but I would say 80% of these concerns are addressable by the procurement clients and executives themselves. These concerns are nothing unlike those already exist with conventional sourcing methods like RFPs, tenders, or face-to-face negotiations.
The technical aspects are easy to be picked up and training on that part usually takes less than a day, but it’s the game rules, pricing setup, supplier pre-qualification and online integrity that will need to be addressed and covered in most detail. When I teach such topics, I always bring it back to the very basics when I am asked with the above questions. What would you do if you have these challenges with conventional sourcing? It’s exactly the same tactics and preparations that we need to do in e-sourcing. It’s only the negotiation platform that is changed; the sourcing philosophy isn’t.
Sometimes I really have to give it to the Chinese. We Chinese are very fast learners in general, and we pick up new technologies in a snap. When I teach in mainland China, I am constantly challenged to keep my local clients fully engaged and interested. They get the benefits of e-sourcing instantly. It’s quick. It leaves the negotiation from between each supplier and the buyer to between suppliers themselves. It shows their bosses what the most updated market price is. Although there are clearly constraints of e-sourcing, most local clients I introduced are truly amazed and excited over the 30-minute or so online bidding event. The buyers clapped, pulled in their colleagues and bosses, and some even toasted with champagne.
What I am afraid of are the REALLY smart adopters. One Chinese client asked me to teach them how to register as a supplier so that they could join the event to “observe”. I wasn’t born yesterday, and at times like this, I had to stop them right away so as to make sure they were only joking and not thinking of intervening an event unethically. I felt that they understood it, but from the corner of my eye, I swore I could see a few of them plotting the possibility silently.
I am all for innovation, but don’t step over the line, guys.
Confessions of a Corporate Shopaholic 