Technology Sourcing and E-Auctions

There are opposite opinions how e-auction applies to technology procurement. However, the right question to ask is; is it applied in the right market conditions and was it right chosing e-auction as a strategy, applicable to a certain sourcing model. In particular market conditions, the e-auction might not give expected results, especially if the required criteria are not available. However, certain market conditions and comprehensive preparation make an e-auction strategy a good approach. There are five criteria based on which to determine if e-auction is applicable::

  • Distinctive requirements
  • Identified as a saving opportunity 
  • Commercially engaging 
  • Readiness to change suppliers 
  • Competitive supply requirement

The five C framework put forward a comprehensive tool for procurement organisation, but it is not coming without its challenges. For example, the first criterion; is to identify clear requirements. Of course, this criteria do not apply only to e-auctions, but to the whole procurement process. What the organisation will be looking to buy, if there are no clearly defined requirements. Another challenge can be identified with the saving opportunity; if it’s applied too much weight to the category group, then there is a risk to miss considerable opportunities. The market is left to determine the price when there is a much concentration on saving strategies. Another perception of market-driven possibilities is that it takes the manager’s requirement to determine the price. 

A readiness to change the supplier is another criterion that needs to exist before e-auctions are performed. This gives an organisation a possibility to source and determines how the market moves and what other possibilities are within the technical qualification of new suppliers. 

The market position usually determines if e-auction can be applied to negotiation. When the assessment is performed, there are two important criteria to look at: commercial attractiveness and market competition. If these two can be applied, then the e-auction can prove to be a good choice. Of course, those two criteria are shaped by the category strategy and management, where that category is made to appeal to targeted suppliers. In most cases, e-auction changes the monopolistic structures by introducing new choices and decision making to the perceived non-competitive monopoly. 

If competition is missing, the market-driven e-auction is impossible. It is the function requirement, that more than one supplier exists. The level of competition is not the same but will differ among different suppliers, which is the beauty of the market-driven negotiations that will determine the cost-saving perspective. Of course, the number of qualified suppliers is not the only criteria to determine the level of competition, it all depends on market conditions and the mutual relationship among involved suppliers. Therefore, it is key to perform a market assessment and ascertain the level of competition before any e-auctions take place. 

Commercial attractiveness also comes with the market condition, where different conditions determine different states of commercial attractiveness. A commercial attractive contract may seem financially viable for one type of supplier but not for another. Performing an e-auction should be such that creates the incentive for suppliers to invest in a certain project and consider it worth being involved. 

In general, the commercial attractiveness of whether a supplier participates in e-auction is made on a basis of the timing the supplier is required to prepare vs the potential value for the supplier if wins the deal. If the outcome of this calculation is positive then the e-auction is worth participating in. 

Adopting the e-auctions applicability framework gives the organisation sensible choice and enhanced possibility to make the right decisions. 

Veselin Shivachev

Vedera Consulting
+44 (0) 2381941164


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