We have been running auctions for over a decade now, but we have never done an auction, where suppliers would have confirmed knowledge on who is competing.
Why not, is what we have been thinking lately…? We are currently discussing 2 categories, where we have auctions scheduled:
§ Energy / Electricity (for a German site)
§ Standard Software
We would like to share our thoughts and in return receive some feedback from the experts in this forum:
ð Have you done this before, what was your experience, why have you opted not to do it, what pros/cons do you see for buyers/suppliers in specific contexts, prerequisites and exceptions?
# If we decide to go along with this, we will share some anonymous supplier feedback and experience by revisiting this posting in a few weeks/months.
In many categories suppliers already have a high probability of being able to guess the competitive framework
e.g. in Hardware Auctions, where you would show ranking information and have 3 or 5 suppliers (guess who?)
e.g. in Office Supply Auctions (depending on your geographical approach) (guess who?)
e.g. many more categories, where supplier markets are not very broad (depending on context): oil - fleet - telephony - steel – auditing - ..
in some auctions it may also be a little unfair as the incumbent may be known to competing suppliers, and the incumbent is likely to keep bidding but does not have a clue against whom (agree?)
Potential supplier’s standpoint
Before each auction event we discuss with our clients, if display of rank and/or best price and/or all prices would be the smartest choice.
While in most cases specific details must be thoroughly reviewed for a recommendation >see another posting [not published yet]
ü we have learned from a magnitude of supplier responses, that suppliers do favor more transparency/visibility over less
ü likewise many times there is fear of unethical behavior e.g. including some global suppliers – we feel uncertainty about competition is a great threat to suppliers.
(In many cases they have much less competitive intelligence, than they assume to have and of course a lot less than they would love to have..)
==== CONS - Reasons for NOT providing supplier names ====
Threat: Suppliers may use this information to engage in a mutual agreement with some key competitors
Agree on minimum pricing
Agree on allocation of lots/items, products/services and locations/countries
Agree on mutual criticism (joined forces) of challenging standard contract template, price-escalation-clause, length of fixed pricing among many other terms etc.
Threat: Suppliers may object to this procedure as their pricing is confidential and will not want to participate under those terms.
Quite likely, that it may also depend on which companies would be competing.
Existing company policy
Threat: Suppliers may disagree with the companies involved in the competition
Subjective view on each companies standing (sorry, but competition is never fair e.g. companies from completely different revenue clusters, etc.)
Subjective view on each companies capabilities/quality (arguable discussion may be raised from high quality suppliers, but in the end the buyer needs to have least quality requirements filled)
Threat: Suppliers, who are new entrants to a market may dislike becoming visible to competition as they are still enjoying their “below radar status”
Threat: Suppliers may get distracted too much and rather focus on which competitor is bidding what price, which would in turn lift their concentration off their rank and/or best price.
==== PROS - Reasons for providing supplier names ====
Strength: Additional insights may positively influence bidding behavior of suppliers
- e.g. if a major supplier who is known for very low/no market share in a certain branch or country, competing suppliers may be enticed to provide even more aggressive pricing to prevent them from gaining entrance (strategic bid)
Opportunity: Suppliers may gain more trust from an event, knowing who is competing.
Opportunity: Suppliers may derive more value from an open event, when seeing this is an open benchmark practice with their peers for a specific client/demand type.
Opportunity: Suppliers may have greater lessons learned, when completing a loss analysis after the event.
==== SWOT Analysis on providing supplier names ====
Strength: Drive competition from an anonymous event by making “enemies” a visible target.
Weaknesses: Pricing and Competition is known.
Opportunity: Raise willingness to engage on price concessions in the light of direct “A”-competitors.
Threats: This level of transparency places additional pressure on the buyer.
==== Prerequisites ====
A first set of potential/generic prerequisites:
ü critical mass of suppliers, e.g. +20 potential competitors – in order to prevent prior consultation (which may be cured by additional time pressure e.g. small time frame in total and only displaying supplier names during the short time frame of the auction)
ü contractual and pricing terms are detailed/fair and leave (close to) no room for interpretation.
ü crystal clear item spex / SoW.
ü comparable capabilities in terms of company and offering – as much as possible; if suppliers have a different opinion on this, there will likely arise some discussions.
ü non strategic, non secret commodity, suppliers and pricing.
ü not compromising on suppliers’ internals – e.g., if you require a special certification from your suppliers you will by serving this information to competition (in case they did not know ..)
For our 2 categories (Electricity & Standard Software) we had to answer ‘YES’ on all prerequisites mentioned above.
==== Introducing an Open Auction to Suppliers ====
As always, communication is key to presenting this method to the market.
How do you feel about the following options –> we would want to leave room for comments and leave us with flexible options?
Options for embedding this idea in the communication to the market and/or receiving feedback from the market:
(1) With the official project invitation we may want to communicate this to suppliers as given.
No feedback mechanism except reasoning opt-out by suppliers (unfortunately there would be less flexibility when we would like to return to a “normal auction”)
(2) With the official project invitation we may want to ask suppliers their view on an open auction.
Feedback mechanism in place
Providing the option to vote “no”
Currently I personally value a version of (2), but potentially not providing a hard “no” option to suppliers.
Let us assume, that suppliers may vote in favor for this approach at a ratio of 50:50.
As a “workaround” we might want to share competitors’ aliases within the 50% only.
The result would then be an interesting open benchmarking for those 50% and a blind dive for the other 50%, which would in turn not be an open auction anymore.
==== Empirical Study ====
Classical Auctions many times provide information about participating bidders e.g.:
o English Auctions at Sotheby’s, Christies and alike are room auctions, but bidders may be scarecrows
o Dutch Auctions (for flowers)
Auction for allocation of UMTS spectrum /frequency blocks in Germany and UK – those auctions however are set-up slightly different, but competition seems obvious; in those events however lots of cooperations have joined forces (reducing initial interest from 12 to 5 bidders consortia)