Understanding eAuctions

eAuction Types - Uses and Benefits

Over the past half decade or more, internet auctions have grown to become a key tool for procurement professionals. They have evolved significantly since they started to be used in purchasing and have become a common tool for discovering true fair market pricing for goods or services, whether the market itself is rising or falling.

Today, there are many types of eAuctions to choose from, and buyers who take advantage of these advanced online negotiations will find themselves effectively sourcing complex categories where attributes outside of price can be taken into account.

So, what types of eAuctions are available? What’s the benefit of each of the different designs? What eAuction should buyers choose their unique purchasing projects?

Price-Only Negotiations

Traditionally most eAuctions have been run on a price-only basis. The buyer qualifies suppliers to a certain minimum requirement (taking into account quality, experience, delivery, capacity etc). Suppliers who meet or exceed the buyer’s requirements are then invited to an eAuction where they compete on price.

Reverse English eAuction
The Reverse English eAuction is the most common auction format. Under this format, each supplier is made aware of the best bid (i.e. lowest bid) and/or their ranking. Suppliers submit decreasing price bids until no further bids are received.

TradingPartners recommends Reverse English eAuctions when:
a) the buyer has a clear minimum specification, and is indifferent about any value-add beyond that minimum specification
b) there are enough suppliers to stimulate competition (usually six or more).

Reverse Japanese eAuction
In a Reverse Japanese eAuction the buyer drops the price and suppliers accept or decline at each price level.

TradingPartners recommends Reverse Japanese eAuctions when there is a lack of sufficient suppliers to stimulate competition.

Multi-Directional eAuction
In a Multi-Directional eAuction the supplier bids the price downward on certain items and upward on others. For example, a supplier might negotiate the item price downward and negotiate a rebate percentage upward (e.g. to help with promotional or advertising costs).

TradingPartners recommends Multi-Directional eAuctions when:
a) the buyer has a clear minimum specification, and is indifferent about any value-add beyond that minimum specification
b) there are enough suppliers to stimulate competition (usually six or more).

Total Value Negotiations

As with the more traditional price-only negotiations, suppliers are first pre-qualified against a standard minimum specification. However, the relative merits of the non-price elements of suppliers’ bids are taken into account as well as their price. (Non-price elements can include delivery, ISO certification, environmental considerations, alternative specifications etc.) The suppliers are ranked based on an adjusted bid made up of the price bid minus an allowance for value-add (the non-price elements of the offer).

For complex categories that are not pure commodities, Total Value Negotiations are preferred by suppliers because they can bid expressively to their strengths. Some suppliers may focus on product quality, others might prefer to focus on price.

Weighted eAuction
With this method, suppliers are scored according to the buyer’s requirements. Prior to the eAuction, this score is used as an input into a score rule that will adjust the supplier’s price bids to level the playing field among the suppliers.

During the eAuction, the suppliers cannot modify any non-price attributes. Each supplier’s price is adjusted according to the score rule, with the contract being awarded to the supplier with the lowest adjusted bid.

In a Weighted eAuction, any competitive information shown to suppliers (e.g. best bid or rank) is based on the adjusted values of all suppliers’ bids.

TradingPartners recommends Weighted eAuctions when:

a) there are significant differences in quality or other non-price criteria among suppliers, and these differences affect the buyer’s preferences - i.e. the buyer is prepared to pay more for a higher-quality offering

b) these differences are fixed and not negotiable, for example ISO certification, location etc.

Multi-Attribute eAuction
With Multi-Attribute eAuctions, the suppliers are scored according to the buyer’s requirements. Similar to Weighted eAuctions, the score is used as an input into a score rule that adjusts the suppliers’ price bids to level the playing field prior to the eAuction.

During the eAuction the suppliers can modify not only their price but also some of the non-price attributes – for example, to shorten lead times in order to improve their overall position. It is not necessary for all non-price attributes to be negotiable in a Multi-Attribute eAuction – e.g. a supplier might be able to bid on lead time but not be able to bid on ISO certification status.

TradingPartners recommends Multi-Attribute eAuctions when:

a) there are significant differences in quality or other non-price criteria among suppliers, and these differences affect the buyer’s references - i.e. the buyer is prepared to pay more for a higher-quality offering

b) these differences contain some elements on which the buyer is prepared to negotiate.

What eAuction should be used in what purchasing situation?
Whatever eAuction project you decide to run, in all cases the best practice is to consider the potential eAuction types, and the weightings for price and non-price criteria, at the outset of the sourcing project. The decision tree should also help you choose which eAcution to use. Click on http://www.tradingpartners.com/usa/understanding-eauctions to view the decision tree.

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Article submitted by TradingPartners

TradingPartners has been at the heart of the procurement eAuction revolution since 2000. We pride ourselves on successfully delivering the best fully-managed eAuction service to clients across the globe.

With offices in Asia, Europe and the USA we are committed to saving clients time and money through advanced eAuction technology, unparalleled category coverage and exceptional service driven people.

Europe Headquarters: 54 Jermyn Street London SW1Y 6LX, UK Tel: +44 20 7261 0000 Fax +44 20 7261 0066 www.tradingpartners.com/europe	USA Headquarters: 311 South Wacker Drive 51st Floor Chicago, IL 60606, USA Tel: +1 312 857 3000 Fax: +1 312 857 1870 www.tradingpartners.com/usa
Asia Headquarters: 12/F Platinum 233 Tai Cang Road, Xintiandi Shanghai 200020, China Tel: +86 21 51029096 Fax: +86 21 23010660 www.tradingpartners.com/asia

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e-mail Chris Brenkus at cbrenkus@babcc.org.  Article contributions are most welcome. 

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Midwest Investments in UK
Source:  BritishAmerican Business
Investment Newsletter

Satellier Opens London Office
Satellier Inc., the global leader in workshare solutions and pioneer in Building Information Modeling services (BIM) for the architecture, engineering, construction and building owner (AECO) industry, announced that it has opened a London office to directly serve the UK market. Mikele Brack has joined Satellier from Atlas Industries as Executive Vice President and will lead the company’s London office and European business development efforts.

Satellier Inc (Corporate Office), 5516 West Foster Avenue, Chicago, Illinois-60630. Tel: 001- 866 305 7553 Fax: 001- 866 571 7555 Email: info@satellier.com Website www.satellier.com

Palmer Johnson to Create 800 Jobs in UK
At least 800 jobs will be created when Wisconsin-based super yacht builder Palmer Johnson establishes its UK base in Hampshire. The company is to build a range of bespoke vessels in Hythe and Woolston in Southampton. Palmer Johnson is primarily engaged in building and repairing ships, barges, and lighters, whether self-propelled or towed by other craft. The services also include the conversion and alteration of ships and the manufacture of off-shore oil and gas well drilling and production platforms.

Palmer Johnson, 128 Kentucky St, Sturgeon Bay, WI 54235. Tel: 001-920 743 4412, Mike Kelsey
President, Website: www.palmerjohnson.com 

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UK Investments in the Midwest
Source:  BritishAmerican Business
Investment Newsletter

 

UK-based Really Useful Products, a British maker of storage containers is gearing up to start production at a US unit, Really Useful Boxes, in Elk Grove Village, Illinois. The company already has invested $4m (€2.5m) to develop new products for American consumers and set up a warehouse, according to Mike Pickles, president of the parent company. The US factory will be modeled after the headquarters plant in Normanton, which has 75,000 square feet of manufacturing space and 25 presses. The company planned to invest around $5m a year (€3.2m) to bring a complete line to the US market.

 

Really useful products Ltd, Unit 2, Network North, Foxbridge Way, Normanton, West Yorkshire WF6 1TN. Tel: 01924 898 477 Fax: 01924 898 588, Mike Pickles, Director, Email: boxes@reallyusefulproducts.co.uk Website: www.reallyusefulproducts.co.uk

 

 

Sirane to Open Plant in North America

A UK plastics packaging firm looks set to branch into the North American manufacturing market by the end of the year. Sirane, based in Telford, is currently investigating new site opportunities across the pond after the US market expressed an interest in its ovenable absorbent pads, rotisserie liners and absorbent cook-in bags. The manufacturing company, which appointed its first US sales manager this month, plans to have a plant up and running by the end of 2008 and eventually open a second in the mid west. Sirane, which employs over 90 people and turns over in excess of £7m (€8.7m) plans to launch its entire range. Sirane manufactures a range of packaging and other products including specialised absorbents, bio-degradable, bio-compostable microwaveable and ovenable materials and protective materials for a number of food and other applications.

 

Sirane Ltd, Unit 14, Hortonwood 32, Telford, Shropshire TF1 7EU. Tel: 01952 677931 Fax: 01952 291052 Simon Balderson, Managing Director, Email: info@sirane.co.uk Website: www.sirane.co.uk

 

Aviva Opens North American Regional Office

Aviva plc, the world's fifth largest insurance group, announced that it has opened offices in Chicago to house its North American Region executive team functions, one of four regional centers for Aviva's global operations. The North American Region will provide leadership and support for the company's overall North American business strategy, business development, finance, corporate affairs, and human resources. Aviva's existing life insurance operations will continue to be headquartered in Des Moines, Iowa; existing general insurance operations will continue to be headquartered in Toronto, Canada. Aviva is the leading provider of life and pension products in Europe (including the UK) with substantial positions in other markets around the world, making it the world's fifth largest insurance group. Aviva's principal business activities are long-term savings, fund management and general insurance, with worldwide total sales of $98.4 billion and funds under management of $724.6 billion.

 

Aviva plc, St Helen's, 1 Undershaft, London EC3P 3DQ. Tel: 020 7283 2000 Email: aviva.info@aviva.com Website: www.aviva.com

Aviva USA, 699 Walnut Street, Des Moines, IA 50309 Tel: 001-515 362 3600 Website:

 www.avivausa.com

 

 

Bank of Ireland Opens US Office

The Bank of Ireland (“BOI”) has announced that it has opened a new corporate banking office in Chicago, IL.   The bank’s expansion in the US is part of a strategy to reposition the group’s geographic earnings profile. The Chicago office will strengthen the bank’s corporate banking franchise across the Midwest region. New office will focus on originating and arranging private equity sponsor backed transactions across a range of sectors including healthcare.  Richard Michalik joins the team as Managing Director of US Leveraged Finance. Pat Laughlin has been appointed Managing Director & Head of US Healthcare and will be also based at the Bank’s Chicago office. BOI will be adding additional staff to the new Chicago office in the coming months. BOI Corporate Finance has provided financing for private equity sponsored deals across the US and has been a lead arranger on a number of high profile private equity transactions. The Chicago office joins corporate finance offices in Los Angeles, CA and Greenwich, CT.

 

Bank of Ireland Corporate Banking, Eastcheap Court, 2nd Floor, 11 Philpot Lane, London EC3M 8BA
Tel: 0207 560 8400 Fax: 0207 626 2405. Website: www.boi.ie/corporate or www.bankofireland.co.uk

Bank of Ireland Corporate Banking, 300 First Stamford Place, Stamford, CT 06902 Tel: 001- 203 391 5900
Fax: 001-203 391 5901 Website: www.boi.ie/corporate