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E-Auctions & Supplier Alienation

April 7, 2010

I have written several times in the past about e-sourcing and e-auctions, highlighting the need for organizations to understand how and when to use these approaches. With more than 80% of negotiations now undertaken primarily by ‘virtual’ means (i.e. limited or no face to face meetings), it has become imperative that buyers and sellers become more astute at their management.

When using automated systems – whether it be specific software applications or more general methods such as e-mail – it is easy to forget that there are real people with real feelings at the receiving end. Systems are not sensitive to their emotions or needs and it is very easy for misunderstandings to arise and alienation to occur.

This is illustrated in an interesting question posed by Supply Chain Vice-President Erik Lomholdt. Based in Denmark, but with substantial overseas and cross-cultural experience, it is perhaps not surprising that Erik is sensitive to the communication challenges associated with the use of software tools. In a brief article, he says: “Many of us are accustomed to various Reverse Auction programmes sending out Auto generated Post Auction Refusal Letters stating the obvious; that the supplier was unsuccessful and that the contract will be awarded to someone else – to the point and end of story.

In the hunt for savings I have seen many buyers forgetting that behind the unsuccessful leverage suppliers, there are real people with feelings that can turn quite ugly if they are not managed properly. ”

Erik goes on to ask how buyers are managing these feelings and the effect that poor management may have on a company’s reputation.

Among the replies to this question, respondents emphasize the importance of proper pre-qualification so that suppliers feel that their investment of time is worthwhile; and that standard, system generated notices of failure should not be used. “We typically use a combination of phone calls and personal emails to break the news,” says one, going on to add that most times when e-auction is used, it is for relatively short-term contracts, so frustrated bidders are soon likely to have new opportunities. Another respondent advocates: “Help the “losing” suppliers by telling them how they – seen from your perspective – can improve their future offering. In doing so you also help your own company by educating the suppliers about your expectations, and thereby helping them to prepare for next time the door opens”.

It is certainly important for buyers to remember that if they alienate too many potential suppliers, their future auctions are likely to suffer. It is also essential to vary the process around the use of the tool, to distinguish based on factors such as contract value, duration, the extent of competition and the need for a relationship that goes beyond simple transactions.  I know that some organizations have developed far more sophistication in their use of spend management software, but I don’t know how general that is.

I would welcome supplier perspectives on their experiences – and in particular, any positive experiences that in your view represent ‘good practice’ in the use of e-auctions.

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