Tuesday, 23 August 2011

Do e-Auctions reduce the quality of supply?

Last weekend I attended a fantastic Indian wedding at Addington Palace, where many years ago Henry VIII courted Anne Boleyn.  I certainly hope the bride for this wedding manages to keep her head!

Anyhow, during the reception lunch I was interrogated by a friend of mine in the banking industry about the concept of the reverse auction.  Whilst he completely understood the concept as a means for efficiently negotiating the market price for the required goods and services, he was very dubious about how the quality of supply was maintained.  

Just as I was about to launch into my rhetoric about specifications, approval processes, qualification criteria, trials & samples, ongoing category management and so on, another friend of mine stepped in to share his thoughts.  

This friend works as a Product Technologist at Sainsbury’s.  Recently he was involved in his very first e-auction.  When he was first alerted to the procurement team’s intentions, he too was sceptical, as e-auctions to him at that time meant beating up suppliers to the lowest price, regardless of quality and capability.  

However, the procurement team sensibly brought him into the process and he was given the role to ensure that the invited suppliers were suitable and capable to supply.  He carried out this work, which is his usual day-job, by conducting the thorough audit and inspection processes on all suppliers who were invited to bid.  This included requesting and assessing samples of the products, ensuring compliance to the food standards, ensuring compliance to health and safety processes, auditing the quality control procedures, even the complete disassembly of factory equipment to inspect all the cavities and voids inside the machinery for leftover food!

Some of these inspections were carried out unannounced at 3am, where the unfortunate factory manager, still endowed in a dressing gown and PJs, drearily took his visitor around the facility, visibly shaking from the haranguing experience.  However, you can see that a 24 hour facility needs to demonstrate 24 hour compliance.

Combining the quality and manufacturing aspects alongside the purchasing rigours such as financial validation, past performance and tight specifications ensures that the suppliers are thoroughly audited and know what they are bidding for and to which requirements.

The result of all this diligent work is that during the course of the auction, there was no doubt that the suppliers involved were truly capable to supply the required products. This left price as the only factor to investigate and the auction was a very effective and efficient method to do this.  The auction could even be run on a ‘winner takes all’ basis, since the significant elements of the award decision had already been catered for during the preparation phase.

Now, not every organisation has the available resource to dedicate a quality control expert to the 6 to 8 week process.  However, in this case the return on investment was so greatly in favour that drawing upon multi-skilled resource from other areas of the business should be the norm.  Certainly this is something that we would recommend.

I was able to sit back and enjoy my friend’s experience. It certainly echoed the sentiments I felt about e-auctions many years ago and how they greatly enhance the procurement process for the benefit of any organisation beyond just price.   

Even more enjoyably, it kept the banker quiet!

About Market Dojo:

We offer Business to Business e-Sourcing software [RFQ’s and Auctions] to help companies save time and money when negotiating for their goods and services.

Our guiding philosophy has been to develop cloud-based software-as-a-service (SaaS) suited for the in-house professional. 

It is designed around three core ideas: 
  •  very easy to use (no training costs)
  • embedded professional processes (ensuring success)
  • transparent pricing (great value)
Our software costs just £1,000 per sourcing event or £5,000 for a single-user annual licence to run as many sourcing events as you wish. 

For more information please refer to www.marketdojo.com


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