Questions to Ask an e-Auction Vendor It’s just e-Auction right? It’s all the same, right? WRONG! The products on the market display a wide range of capabilities. The sales pitches from vendors contain an even wider array of “ feature” based arguments that confuse even an expert. The concept is still not well understood by some vendors at all! And that’s why you need to know what you should be asking. This short presentation, based on a Sourcing Innovation post, will overview the key questions to ask and responses to look for. http://blog.sourcinginnovation.com/2007/12/13/the-12-days-of-xemplification-day-1--rfx--eauction.aspx by the doctor of Sourcing Innovation

Question 1 Can I define my own bid type? Not every bid is as simple as a price per unit -- especially since you should be taking landed cost into account. Furthermore, this is more than just defining a unit bid and a freight bid per unit -- it's the ability to define a fixed processing cost per unit while the application automatically factors in an expected value for a variable fuel cost. It's the ability to define your own adjustment that corresponds to the various utilization costs associated with different products from different vendors. For example, if you're in food service, each type of sauce packaging implies a different amount of waste -- metal cans and plastic bags and lined box-board have different "stick" factors, and the easiness of "scraping" or "draining" the contents from the package often varies by package design (such as cube vs cylinder vs tetrahedron).

Question 2 Can the tool support complex formulae, splits, and cross-lot rankings? Not only do you want the be able to support bids based on complex formulas, but you also want to be able to rank bidders based on their individual bids on different lots and based on their entire package bids. A supplier might bid 100K for lot 1, 200K for lot 2, 300K for lot 3, and 400K for lot 4, but be willing to bid 900K for all four lots (equal to a 10% discount if they get everything). Without complex formulas and cross-lot rankings, the supplier couldn't enter entire package bids or discounts, and you will not be able to capture the full value available to you through the auction.

Question 3 Does the tool integrate with an optimization solution? Complex formulas and cross-lot rankings are a good start to getting the lowest bids, but they do not capture all of the complexity associated with a sourcing scenario, and do not guarantee the outcome of the auction will be an allocation that optimizes your total cost of ownership. Simply put, a dual-source strategy is preferable to a single-source strategy from a risk management perspective. A given supplier might be willing to make considerable infrastructure improvement investments if they get the business, resulting in year-over-year cost reductions that could significantly undercut the lowest bid another supplier is willing to give you today. The reality is that most auction tools don't support real-time optimization, and most of those that do support real-time "optimization" don't support it very well, but that's okay. The point is do they integrate with an optimization solution -- since any high-value scenario on strategic categories or commodities should involve a separate optimization step where you run multiple what-if scenarios to understand what your business rules are costing you, what risks the lowest-cost solutions are exposing you to, and what the most valuable award is when you balance cost and risk. You should be able to easily import the results of the auction that you use to collect the initial bids, as well as easily create rules that guarantee the winner(s) of the auction receive a minimum amount of the award.