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Reconsidering the Services Category for eAuctions

Published August 18, 2020

Category: Business Process

Written by: John Powell
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John Powell

John Powell is a Senior eSourcing Consultant at Scanmarket. John has 21 years of sales and sales management experience with companies both large and small, but most recently with SIG (Sourcing Industry Group) where served as the VP of Membership Development for over 5 years. He brings specific expertise in the financial services and mortgage industries with the past 6 years focused on procurement solutions and innovation. Prior to SIG, John managed a team of 30+ Account Executives for Citibank. John has a Bachelor’s degree in Business Administration from Edinboro University.

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It is amazing the differences there are culturally to the concepts of eAuctions and their widespread adoption. In Europe, eAuctions have been adopted by most organizations and are considered an integral part of the strategic sourcing process. But in North America there remains quite a bit of skepticism and doubt about not only adopting the practice, but which categories are the best candidates to benefit from this strategy.

Benefits of eAuction

One of the great misconceptions about eAuctions is that commodities produce the best results in terms of overall cost savings. When there is little or no differentiation between products, it’s relatively easy to obtain favorable pricing based on competitive bidding among many suppliers. Where it gets tricky is when there are differences in the actual commodity being procured.

There can be several determining factors that influence the Total Cost of Ownership (TCO). Many of those variables cannot be determined by the supplier but are based on an internal stakeholder’s own opinions and preferences. There can also be factors outside of your control that influence TCO. Calculating a true TCO can sometimes be difficult or impossible.

As more organizations adopt Kate Vitasek’s Vested philosophy, there has been some reluctance to employ eAuctions as companies attempt to “get to we” with their strategic suppliers. How can a buyer consider their suppliers as partners if they are continually running their products or services through an eAuction? Not only can this be done, but it  has been done successfully all over the globe. The most successful area is Europe, where the term partner is not taken lightly.

Services Category Success

With all these headwinds apparently working against the North American buyer, there is one category that regularly gets overlooked and even ignored when it comes to running an eAuction — the Services Category, which comprises temporary labor, cleaning, IT and security, etc.

Repeatedly I have heard that only commodities can successfully be run through an eAuction and the services category is not even a consideration. Why would that be? Too many variables? Differences between providers and the actual service they perform? Trying to compare apples to apples and oranges to oranges?

According to the data from Europe, Services have been the top product area in both Q1 and Q2 of 2020 in terms of sheer volume. Although not necessarily at the top in terms of cost savings, we have seen modest savings of 14.77% on a category that is rarely considered in North America.

“Getting to We” With the Services Category

It’s hard to imagine such an opportunity would be overlooked, but that is what is happening. It’s very possible to “get to we” and obtain favorable pricing at the same time. Having an open dialogue and process (rather than bludgeoning a supplier over price until they are barely solvent, as one practitioner put it to me) leads to success.

You must have metrics in place to compare service providers and evaluate what is essential to your organization in a particular transaction. Sometimes, there is only one service provider that meets your organization’s bespoke needs.

That doesn’t necessarily mean it isn’t a candidate for an eAuction. There are many ways to structure these events. Each one stands to succeed or fail based on how it is set up and how it is presented to the service provider.

You can also be a strategic partner with the service provider long after the eAuction if expectations are realistic in the beginning and there’s transparency throughout the process. Recently, I heard from a very respected practitioner who was not fond of eAuctions because he still had to negotiate with the supplier afterward.

Imagine being the “strategic partner” after that event and you were still subject to another round of negotiating after participating in good faith in their eAuction. That is probably not the best way to “get to we.”

Maybe it is a cultural thing or perhaps North America is just hesitant to follow the European lead. For whatever reason, the services category represents an enormous opportunity for savings that is mostly being missed.

There is a proven track record of success and I believe it is just a matter of time and awareness before the North American sourcing practitioner adopts the services category as a staple product to take to an eAuction. The sooner the better.

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