We often talk about the role of the Procurement Department and its incredible transformation over the past few decades. It has changed from being the place where supplier negotiations happened to a strategic hub in businesses, able to gain precious performance points. The impact of digital on this transformation is huge, speeding it up, but also widening its scope. And yet this does not mean the purchaser’s traditional role of negotiator is any the less important. Online auctions are a major performance lever for procurement departments in a digital world. Our expert Pascal Poirier, project manager at Synertrade, explains.
Reversed auctions: when digital strengthens the negotiation process
Of the different negotiation methods that procurement departments can employ, reversed auctions are being used more and more widely. The bidding system makes it possible to choose a supplier using multiple selection criteria. Unlike requesting an estimate or asking for the price, which is relatively simple and mostly used for non-strategic procurement, reversed auctions introduce competition based on complex criteria. An online auction, means securing negotiation and contract processes right from when the supplier relationship is born.
Pascal tells us: “Online auctions require preparation in advance; they are the last stage of the procurement process. They come straight out of preliminary work to set the specifications, which is generally done by the procurement department, R&D and marketing. Using criteria (other than price) to select the suppliers to be invited to auctions helps to avoid risk. If suppliers don’t always think highly of reversed auctions for now, they do help them to improve performance. This function of the Synertrade digital procurement suite is an important lever when it comes to digitalizing businesses, and helps to set up virtuous models in procurement.”
Avoiding risk in the supplier relationship and encouraging a virtuous model
Risk in the supplier relationship is a big and highly complex issue for procurement. Risk is present on multiple levels, which means it affects the whole business. Whether legal, geopolitical, financial or ethical, it must be anticipated and avoided as much as possible. The preparation phase involved in online auctions makes it possible to pick the safest suppliers to take part, depending on the objectives of the business. The Synertrade Auction solution anticipates an interview with the buyer so that the supplier can understand how the auction works and have any questions answered. The solution also reminds each supplier to join the auction. This way of working equates to a human, collaborative approach that involves training the supplier. It also encourages suppliers to find ways to meet the requirements of a business in the hope of being chosen. This is a far cry from traditional auctions where the human aspect was almost non-existent, with rules that were not always well defined.
Reversed auctions: the future of contracts in the digital age
Online auctions allow procurement departments to streamline the negotiation process without being limited by time or space, with online tools that make it possible to make the right decisions using precise criteria and processes. They help to establish transparency, because the selection criteria are made clear. The weighting given to the bids is likewise made clear, which reassures the supplier on the reasons that made a purchaser proceed to a contract. The effect on the supplier is very positive, because they are given information and precisions that are useful for their own progress. They know right away if they have been selected, and if they are not, they can assess the improvements to be made to their bid. As for the buyer, they can organize auctions with extremely big supplier panels, on the national or international level, and keep track of the entire negotiation process. This means they can dedicate more time to other tasks, like seeing suppliers or tracking down innovation, which have now become an essential part of the job.
Using an online platform to capitalize on e-Auctions does not just allow the procurement department to make negotiations more relevant and more precise while strengthening the link with potential suppliers. It also helps them to secure compliance with the conditions set out in the contract, through contracts that are generated post-auction, precise both with regard to cost but also with regard to all the procurement conditions. This means that the procurement department, ever more connected, should privilege this negotiation process, to improve overall performance and also to automate the procurement process. Thanks to digital, buyers can increasingly focus their time, skills and expertise on the high value added tasks they need to do, for the benefit of the whole business.