Hello Aribians! Today's Knowledge Nugget is on effective auction practices. I've broken this nugget into three essential parts. This is part 3 - Example use of an Auction and Forward Auction Templates. For parts 1 and 2 please follow the links at the bottom of this post. Enjoy!
1) Example use of an Auction
Suppose your computer manufacturing business knows of several participants that are capable of providing, at competitive prices, the specific goods or services that you want to purchase. Use an auction to bring the participants into competition for your business. Create line items for everything that you want to buy. You can group line items into lots to create a package of goods or services to bid on. Specify ceiling and reserve prices, timing rules, and other strategic rules, to maximize competition. Train the invited participants in advance so that they are comfortable using the Ariba Sourcing interface. On bid day, participants log in to Ariba Sourcing and submit bids. Optionally, a real-time graph shows them how they compare to other participants. You, or someone in your organization, administers the auction, changing the timing of lots, deleting erroneous bids, and responding to participants’ questions.
This is the standard auction. In a reverse auction, suppliers submit bids, offering progressively lower prices in an effort to outdo their competition and offer you the best price. You configure rules to determine the timing of the auction, the amount of market information communicated to participants, and bidding rules, such as, “Is the lead bid protected by a buffer?”
Extended Reverse Auction
This is the same as a reverse auction, except that it also includes the bundle lot “Bid discounted value at item level, compete at lot level (collect item pricing during bidding).
Reverse Auction with Bid Transformation
Sometimes suppliers’ prices are very different, but when your costs are taken into account, your total cost for their goods or services is very similar.
For example, you need to buy raw materials for a plant in the United States and are considering two suppliers: one is local and one overseas. The overseas material is less expensive, but you must ship it much further. The price of the overseas material, plus the extra shipping costs, equals the cost of buying it locally. The Reverse Auction with Bid Transformation template allows you to design an auction to bring the two suppliers into competition. You set up Ariba Sourcing automatically include the shipping costs of the material in the prices that the participants bid.
Total Cost Auction
Use this auction type to create a competitive bidding event for line items and/or lots, including factors other than price, such as shipping cost, taxes, and the cost of changing supplier, which would apply to all the suppliers except the incumbent. The total cost can expressed in a formula, such as:
Price * quantity + shipping + taxes + switching.
You determine whether the values for these factors are to be provided by the suppliers during the event, whether you want suppliers to see only their own rank, their own rank and the lead bid, or all supplier responses. Supplier ranks are based on the unit cost. Suppliers see their total cost and unit cost. They also see the cost terms that you made visible for them.
Dutch Reverse Auction
Use this auction type to create a Dutch-style competitive bidding event for line items or basket lots. In a Dutch reverse auction the buyer sets a very low initial price and raises it periodically until a supplier accepts the price or a predetermined ceiling price is reached. Suppliers are motivated to accept the listed price as soon as they can or risk losing the business altogether.
Index Based Auction by Amount or Percentage
If you are sourcing a commodity product that is subject to frequent price fluctuations, use an index auction to cause participants to bid in discounts or premiums relative to a market index. There are two templates, one causes participants to bid in a currency amount added or subtracted from the index, and other that causes participants to bid in a percentage value added or subtracted from the index.
2) Forward Auction Templates
There are two templates that allow you to create forward auctions:
1. Forward Auction
This is the standard Forward Auction. In a Forward Auction, participants submit bids, offering progressively higher prices in an effort to outdo their competition.
2. Forward Aution with Bid Transformation
Sometimes participants’ prices are very different, but when your costs are taken into account, your total cost for their goods or services is very similar.
For example, you might have negotiated with participants and agreed to pay the costs to ship their purchases to them. Suppose that one of the participants is based in the United States, and the other is based in France. Since you have agreed to pay the shipping costs, the participants based in France must offer a higher bid if you are to earn the same profit by selling to them. The Forward Auction with Bid Transformation template allows you to design an auction to bring the two participants into competition. You set up Ariba Sourcing to automatically include the shipping costs in the prices that the participants bid.
This has been part 3 of a 3 part post. I hope it has been informative and helpful. For posts 1 and 2 please follow the links below.
This has been another Knowledge Nugget post brought to you by Beverly Dunn.
For more information or details please feel free to contact me!