Word Press blog by Tim Cummins

1. E-Auctions & Supplier Alienation
by Tim Cummins on 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.
First published in Commitment Matters blog, April 7th 2010 Page 1