Busting 4 Common Supplier Myths About e-Sourcing and Reverse Auctions
Suppliers often balk at being asked to participate in e-sourcing and reverse auctions, either due to unfamiliarity with the process or from prior negative experiences. They may even offer buyers a pre-emptive discount to try to stop them from doing e-sourcing. Don’t take it!
In my last article, I wrote about selling suppliers on the benefits of e-sourcing and reverse auctions. In my experience, if you communicate clearly and run a transparent, efficient process, most suppliers grow to feel positively about e-sourcing and appreciative of the benefits. However, to get them on board, along with selling the benefits, you also need to debunk some of the common myths about e-sourcing that might be creating fear of the process. In my experience, these are the most common things you need to address:
Myth 1: I’m going to get ground down on price
Reality: Even though reverse auctions are a means to get to the best price, and suppliers need to be competitive, the bidder with the lowest prices doesn’t always win. Buyers will often use e-sourcing to evaluate other factors, such as delivery time, customer service and SLAs. What often happens is that the two or three companies that come out with the best prices in the reverse auction still have an opportunity to negotiate a win based on their overall package. The important thing for buyers is to be sure to communicate clearly what factors other than price you’ll be taking into account in deciding to award the business.
Myth 2: My competitors will see my pricing
Reality: Since supplier names are anonymous, suppliers will not be able to determine other suppliers’ pricing. Sometimes reverse auctions are setup as “rank only” events where suppliers can only see their rank in the event and not see pricing from other suppliers. Other reverse auctions can be setup as “best price” events where suppliers can only see the best price in the market without any rank or company info.
Myth 3: I won’t have an opportunity for person-to-person relationship building
Reality: The sourcing tool will be used to make sharing pre-auction information transparent and scalable, and to determine price in a reverse auction, but there will still be opportunities for face-to-face communication where it’s appropriate. For a large contract and a multi-year relationship, suppliers will still be invited in. If they’re selling software, buyers will still want a demo. Buyers will still want to see, touch and feel products, especially if it’s something new. And they won’t handle negotiations through a tool. All those things should still happen in person. Used correctly, the tool should not replace face to face communication, but make the process more transparent by ensuring suppliers can see the same information, all the questions being asked and answered, and the actual auction process, at the same time.
Myth 4: It will be time-consuming and hard
Reality: Today’s e-sourcing software is very intuitive and easy to use. Most suppliers can pick up the whole process—how to fill out the RFP and other questionnaires, how to ask questions on the open forum, how to place a bid in the auction--in less than half an hour. Buyers that are serious about getting participation from suppliers will often do a short web training, where participants can check out the system and get details of a specific event while remaining anonymous.
Contrary to what many suppliers believe, e-sourcing is not all about buyers trying to squeeze the last penny out of them. It is about creating a better, more transparent, more scalable process on both sides.
That usually opens up new opportunities for suppliers who are willing to participate. E-sourcing is so much more efficient that most companies who use it can source more categories and hold more events, because the cycle is so much shorter. Once suppliers get the hang of it, they spend a lot less time competing in these events, and if they don’t win one event, there’s probably another opportunity right around the corner.