After completing this lesson, you will be able to:
"Before creating events, we must first think about our template selection and strategy. Do we need to screen supplier responses in an RFP before our auction? Is there enough competition to have a viable auction, and what format is best to drive that competition? There are considerations a project owner will need to determine before creating the event."
Multi-stage sourcing is the act of combining multiple events into a continuous sourcing process.
Auctions can be run as standalone events or following an RFP. The RFP can be used to assess the market place.
A common use of a multi-stage event is to begin with an RFI which serves as a prequalification stage. Only suppliers who pass the RFI stage are allowed to view and bid in the following event, which often is an RFP or an auction.
"Tip: If you know from the beginning that you will be running multiple stages, it’s a good idea to communicate this to suppliers in the first event."
If you need to include competitive pricing through line items or lots in the event, an RFP or Auction is recommended.
RFIs are helpful, but cannot be competitively formatted. When competitive pricing is required within an event, use an auction if price is the main factor when awarding the business opportunity. If price is not the bottom line, a closed RFP with event rules set to improve bids and allow suppliers to see ranks or bids can be used.
This grid may be used to determine the appropriate method of collecting bids based on the available information.
| Negotiate | RFP | Auction | |
|---|---|---|---|
| # of suppliers | Few | 2 or more | 2 or more |
| Competition | Low | Low to High | Moderate to High |
| Supplier Relationship | Strategic or Preferred | Preferred or Competitive | Preferred or Competitive |
| Price Variances | High | High to Moderate | Low |
"The ideal auction situation has more than two suppliers, a high level of competition amongst the suppliers and a low price variance which will allow them to outbid each other easily during the auction."
Contractual restrictions can severely lessen or eliminate an opportunity’s attractiveness.
Business that is commercially attractive maximizes the suppliers' interest and drives the most competition.
Volume must be transferable between suppliers to spur competition. A minimum of two suppliers is needed.
The parameters of the scope of work must be clear for both the incumbents and new potential suppliers.
The entire organization must be committed to the strategic sourcing process or it will struggle.
The margins of the product or service must have compression in order to reduce pricing.
Market conditions and prior sourcing events drive auction selection & strategy.
The "right" auction is one that maximizes competition. The different auction formats and auction configuration options can maximize competition and potential for maximum savings.
If buying, choose a Reverse Auction
If selling, choose a Forward Auction
How long has it been since the last negotiation, and is there any historical data?
Attractiveness of the business, how many suppliers will be invited?
Will the price rise or fall?
How many participants will I have; is there enough competition to have a viable auction?
Supplier capabilities:
Based on market conditions, do I want to run a standard Auction, a Dutch, or Japanese Auction?
Should Pre-Bids be used?
Are Tie Bids permitted, or will it go into overtime?
Based on market conditions how much market information do I want to reveal to other suppliers in the event to drive competition?
Show Rank or Lead Bid or Both, etc.
Do I need to collect pricing on terms such as shipping, taxes, import duties, and tooling costs?
Are the pricing terms equal across suppliers and do I want to reveal those terms to suppliers?
If yes, to equal pricing terms, select a Total Cost Auction template.
If no, to equal pricing terms, select a Bid Transformation Auction template.
Do I need to see how suppliers arrive at their pricing through term itemization?
If yes, select Price Breakdown.
Is the commodity I’m buying sold against a pricing index?
If yes, select an Index Auction by Price or Percentage.
Do I have ceiling, historic or reserve prices?
If buying, choose a Reverse Auction; If selling, choose a Forward Auction.
If pricing terms equal across suppliers and those terms should be visible to suppliers, Total Cost Auction template can be used.
If no to equal pricing terms, select a Bid Transformation Auction template.
Use Price Breakdown templates to itemize terms.
If the commodity being purchased is sold against a pricing index, use an Index Auction by Price or Percentage.
Reverse Auction is the most commonly used, standard template for buyer auctions.
"Now, let's talk about your auction you have been asked to create. Do you have an idea as to which template that we would need to select?"
"All things considered, I feel that the Reverse Auction is the most suitable template for my auction.
I know I need an auction, because I want my pricing to be competitive and the variances between bids are small between my three suppliers.
I do not have a need to alter the format to Dutch or Japanese, and my terms will be the same for all suppliers so I do not need bid transformation or have a need for alternative bids as I know my needs better than the suppliers. I will want to specify pre-bids, and modify pricing attributes like buffers and decrements, which is all available through the Reverse Auction template."
"That is the template that I was going to suggest, as well. We can still opt into setting up overtime, prebids, lotting structures, bid improvements, currencies and market feedback settings like showing responses and lead bids all within the Reverse Auction template if we choose."
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