SCDigest Editorial Staff

SCDigest Says:

Here, the buyer offers a very low price — lower than suppliers would accept. The price gradually increases until a supplier chooses to supply at that price, and which is then awarded the business.  What do you say? Send us your comments here

Many people tend to view e-auctions as a single process, generally with competing vendors bidding electronically against each other for a piece of business within a set window of time.

The options are more complex than that, says Alan Buxton of TradingPartners, an e-sourcing organization in Chicago, in the most recent issue of ISM’s “Inside Supply Management” magazine.

Buxton identifies four styles of e-auctions:

1. Descending Bid E-Auctions: This is the most familiar type. Buyers open the bidding from qualified suppliers at a predetermined price, and they bid against each other in descending order to drive that price down.

Buxton says these are most effective when they include several suppliers that share a similar cost base, so that all are bidding is on a roughly even playing field, and when suppliers understand clearly that the winning bid will be awarded the business – no additional negotiations.

2. Descending Clock E-Auctions: The auction manager states a price and bidders have to "accept" a specified price level (agree to supply at that price) or withdraw from the auction.

In this approach, when bidders accept a certain price level, the auction manager lowers the price level by a defined amount and again asks bidders to accept or withdraw at that level. When one supplier is left standing, it wins the business.

Buxton says this approach works best when “there are three or fewer suppliers, when there are significant differences in the cost base among bidders and when the contract is of different value to the different bidders.”

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Buxton says ascending clock auctions are limited to those categories where price is genuinely the only differentiating factor among bidderss

4. Weighted/Multi-attribute E-Auctions:  Non-price factors are rolled up into a total weighted “merit score.” These non-price factors can include operating ability, quality and style of goods, health and safety requirements, supply chain management capabilities, sustainability factors, and more. “This merit score is then subtracted from the supplier's price bid to arrive at a comparator score,” Buxton says.

In a weighted auction, suppliers cannot modify the non-price elements of their bid,” Buxton adds. “In a multi-attribute auction, suppliers can modify certain non-price elements of their bid (for example, shortening lead time) to improve their overall offering.”

Do you have experience with different styles of e-auctions? Do use any of these types? What works best for different types of buys? Let us know your thoughts at the Feedback button below.