Which product category should you choose for e-auction?

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Why should you do e-auctions? Benefits for the Buyer

The concept of electronic auction in the digital age is a common definition of quick price negotiation. It takes place between selected suppliers. The subject of the auction is a precisely defined product or basket of products that Buyer has chosen. (You can read about the auction types HERE)

Is electronic auction an effective way of buying? Definitely yes! Works great in both direct and indirect purchases.

Why is it worth conducting an electronic auction? Savings are not the only things that matter! Benefits include:

  • transparency and clarity of the purchasing process
  • maximizing bargaining power and reducing prices
  • reduction of labor consumption of negotiations
  • emotions and satisfaction

The key to success is choosing a product category that is appropriate for negotiation.

Which products have the greatest potential for auctioning?

The chart below presents the Matrix Kraljic (about what the Matrix Krajlica is and how it works, see HERE). The matrix presents examples of products and services purchased by the enterprise, broken down into: product supply risk and the level of turnover allocated to given product categories. This way, shopping can be divided into 4 key areas:

Strategic Suppliers

Products included in this area are necessary raw materials, without which the company cannot function. They are of great importance for business continuity. They can be easily recognized because the volume of orders allocated to them is the largest. In addition, they are subject to the highest supply risk.

What products are included in this area? Server outsourcing maintenance (in the IT industry), advanced IT system (e.g. transactional or ERP), raw materials or components used to produce the final product.

Is it worth conducting auctions for strategic products? Probably not. It is worth focusing on improving relations with the strategic supplier and maximizing the value added from cooperation. The key is a long-term contract and supplier performance assessment.

 

Bottlenecks

Look out for bottlenecks. These products do not have a large impact on the volume of purchases, but they involve a huge risk of delivery. It may be due to a small number of suppliers on the market.

What services are included in the bottlenecks? Tax consultancy, legal consultancy, internal audit or consulting services.

How to deal with bottlenecks? Take care of continuity and security of supply. Focus on this, not price negotiations. At the same time, remember that it is worth having an alternative supply in the event of increased risk. It is not recommended to conduct electronic auctions on bottlenecks, because they are specialized products supplied by a small part of companies on the market.

 

Non-critical 

Low supply risk and low purchase volume are the hallmarks of standard products. This area is of the least importance from the point of view of the purchasing department.

Standard products include: fire inspections, catering services, office equipment rental (e.g. coffee maker, printer).

Will the auction work for the standard? With a low purchase value that generates standard products, the auction may not work. Don’t count on spectacular savings. Focus on automating the P2P process (more about P2P HERE). Improve the process of submitting, accepting and completing orders. Control turnover and consolidate suppliers.

 

Laverage products

The leverage product area is the best for the Buyer. Why? A high level of turnover is associated with a low supply risk. An ideal opportunity to negotiate, because it is easy to gather many competing suppliers, compare products and standardize them.

What products and services are listed among the levers? Office supplies, printing, consumables, purchase of security and cleaning services, health and safety articles, electricity, car fleet, telecommunications and logistics services.

Is the auction the best use of the potential of standard products? DEFINITELY YES! Force competitive competition with suppliers! Take advantage of electronic auctions, because it is in this category of products that you have the chance to achieve the best negotiating results and use all purchasing opportunities.

It should be emphasized that, depending on the specifics of the enterprise, the matrix may differ and present differently. For example, electricity for the production factory will be included in the area of strategic suppliers. The reason is that the supply risk is high (the factory cannot function without energy), as well as the difficulty of switching suppliers and the intended level of turnover. However, in the case described, for the sake of savings that electricity can generate, it has been classified as leverage products.

Create your own matrix of shopping categories. Share purchases and find the right product category to negotiate! If you need help, write to us!

If you want to check how NextBuy can support you, request NextBuy demo with one of our procurement experts.


Autor

Damian Czernik
Damian Czernik    
He has more than 6 years of experience in implementing purchasing systems in both the private and public sector. He participated in over 20 implementation projects carried out for medium and large companies from the railway, energy and FMCG sectors. In addition, he has expert knowledge of the organization of negotiations using e-auctions. From 2016, he was responsible for the implementation work of the NextBuy purchasing system.
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