It is up to the buyers to enforce practices in their sourcing process that build trust with suppliers. These practices assume greater importance when companies resort to eProcurement.
Companies that have been successful in building a credible eSourcing initiative tend to adopt the following practices. These practices have been shown to encourage suppliers to participate in a fair and competitive manner.
Buyers agree to the following steps that establish credibility
- Detail out the requirements clearly. While the incumbent suppliers understand even the unstated requirements, the new ones wholly rely on the RFP for clarity. So explain the specifications and service level expectations as clearly as possible.
- Award only to the suppliers who bid online. Manage suppliers who don’t like to bid online with great urgency and importance. A handful of such suppliers can derail the entire eSourcing initiative.
- If lots (containing multiple line items) have been created and suppliers are bidding at a lot level, then award at the lot level only. Do not attempt to optimize the award at a line-item level later. This is unfair to suppliers who tried their best to be competitive at the lot level.
- Do not simply eliminate suppliers who tend to quote too high or too low. Give them a second look. Discuss the pricing with them. It is possible that they have misunderstood the specifications or requirements.
- Communicate the award scenario clearly. When suppliers bid aggressively, they need to know what’s up for grabs. Buyers must state the number of suppliers that might get awarded and the share of the business that they can win depending on their competitive position.
Some additional best practices while conducting an online auction
- Qualify suppliers before the auction. It is advisable not to have unqualified suppliers compete with qualified ones. It does not make a level playing field and will definitely cause issues during the award.
- Award business at prices bid online. Do not negotiate offline with suppliers, especially with the best-bid suppliers. While it may seem rational to do so, every supplier will get to know of this practice and they will not honor future auctions.
- Do not place phantom bids during a live auction. This is an unethical practice and can have serious ramifications. Buyers do this thinking that suppliers will not get to know. But when they do, they will refuse to bid online again.
Encourage suppliers to conduct themselves fairly. They must…
- Respond completely and honestly. The qualifying questions have been asked for a reason need to be responded to in entirety. Do not shortlist suppliers that have provided incomplete documentation.
- Submit all bids as legally valid ones. Do not give lame reasons later as to why a submitted bid must not be considered.
- Bid online and as aggressively as possible. Suppliers must understand that there is no scope to negotiate prices offline. They must bid online aggressively to win the business instead of using other means to convince buyers of their capability.
eProcurement does not mean that everything happens online. Supplier management is more important in this case. Understanding and proactively addressing supplier concerns to bid online is vital to the success of an eProcurement initiative. Spend quality time managing suppliers offline while the bidding happens online.