There’s a bit of a debate in e-auction circles. Really, there are several, but let’s focus on one in particular: To RFP or not to RFP? If you’ve been reading my articles for a while, you know I favor an RFP before an e-auction in most situations. However, there are no absolutes in anything e-auction (are there any absolutes in anything procurement?), so when can something go straight-to-auction? Let’s talk a little about the history of auctions without first gathering quotes or proposals, the benefits of a straight-to-auction, my list of criteria to allow a straight-to-auction, and some example categories that are best for this process.
History of Straight-to-Auction
In the late 1990s, almost every e-auction was a straight-to-auction. E-auctions were used to replace both bidding and negotiations, or even only the bid process. I’ve known practitioners who would use the e-auction to gather and refine bids, then would continue negotiating further with the most competitive suppliers. This whole negotiation-after-auction process is where e-auctions earned a bad reputation with suppliers, and I don’t blame them. Going straight to the auction without an RFQ or RFP makes it extremely difficult to ask clarifying questions. It’s also unclear when unqualified suppliers are allowed to bid because there was very little initial vetting of those suppliers. If only incumbent suppliers are invited to bid to ensure qualified options, the buyer may be missing a big opportunity in the market.
If a buyer works to negotiate pricing further after the e-auction concludes, that negotiation undermines the e-auction process. It takes very few auctions for suppliers to expect additional negotiation, which means suppliers will continue to hold pricing back as much as possible in hopes of continuing to refine bids. Even if suppliers choose to come forward with their best-and-final-offer in the e-auction, it’s very disheartening for a supplier to then hear “Can you come down some more?” after already participating in an auction. It starts to feel greedy and cuts the integrity of running an e-auction. The buyer’s company quickly gains a reputation for caring about cost and not total value or supplier quality when every e-auction is a straight-to-auction.
If straight-to-auctions are from the beginning of e-auctions and undermine a buyer’s reputation, why would we still do them?
Straight-to-Auction Benefits
The first and largest benefit to a straight-to-auction is speed. It is much faster to go straight from a scope of work to an auction, potentially cutting the bid process from months to days. This is usually the first argument technical teams will use when debating whether a company will run an RFx before an e-auction; how fast does it need to be done? One of the main struggles we face in procurement is that our internal customers feel the full procurement process takes too long, so a straight-to-auction can alleviate that complaint.
The second benefit of a straight-to-auction is a double-edged sword. It doesn’t give suppliers long to ruminate on a request. That might be a benefit because suppliers aren’t spending a lot of resources on the bid, which helps the overall project retain momentum. It is a risk because suppliers may overlook crucial details and make more mistakes when they’re rushing to refine bids.
The third benefit is also a double-edged sword: a straight-to-auction can tell you how hungry suppliers are for business. It’s a bit of a measure of how high suppliers will jump when you ask them to. If the buyer is a large company, that may be fine and your business may be so valuable you can ask a lot of your suppliers. The other edge to the sword is that this approach to suppliers won’t make you a customer of choice. A straight-to-auction with a tight turnaround can create a lot of work for suppliers, and they feel it.
When to Skip the RFP
Now we’re to the heart of the conversation: when does it make sense to go straight to the auction? I always use four criteria to determine if something is suitable for going straight to the auction, and I coach clients to require all of these to proceed. If you don’t have all four, run an RFx first.
- There are acceptable agreements in place with all invited suppliers. Purchase order terms and conditions are considered acceptable if they are typically accepted by the suppliers invited, the category in the e-auction, and the spend/risk level. Otherwise, you may need full contracts with all invited suppliers. If this is your only missing criteria and your legal team is on board, you might actually use this as your incentive for suppliers to complete the contract (“We need to have mutually acceptable terms by X date or we cannot invite you to the e-auction/bid”).
- More than one competitive, qualified supplier is invited to bid. This is fairly self-explanatory, but I’ve seen enthusiastic technical or leadership teams try to take a single supplier straight to auction. I really hate doing this. I’m not saying never (because sometimes you’re running all of a certain category through auction and skipping one would look really strange to suppliers), but try to avoid single supplier straight-to-auctions. If you have to do these, consider running a Dutch or Japanese reverse auction instead of the more traditional English. In addition, don’t only run Dutch or Japanese for single supplier auctions, make sure you’re using that format in other places as well.
- All invited suppliers have demonstrated or otherwise proven their ability to meet quality, safety, and technical requirements. This is related to having contracts/agreements with all suppliers, but not quite the same. Even if you have an agreement with a supplier but do not intend to award them work, do not invite them to the bid. It can be tempting to invite these unqualified suppliers in order to put pressure on other suppliers to lower their bid, but this will quickly destroy the buyer’s reputation and undermine your program. I don’t always include this one in my list because I view it as unspoken and simply part of good auction hygiene, but I wanted to be very clear here.
- The scope of work is clear and complete, with no “unknowns” that need to be provided by the suppliers (e.g., estimated quantities, additional optional services, etc.). It’s not unusual in bids for there to be a few unknowns we ask suppliers to complete. That’s fine as long as the questions are not excessive, but is also not the place to go straight to the auction. Use an RFP first to clarify all the various unknowns. In a straight-to-auction, the auction is the first place the suppliers will see the scope of work, so it needs to be clear enough to stand up to that level of pressure.
Best practice for timing on a straight-to-auction is to give suppliers at least one week between the date the e-auction is published and the e-auction date. At least one technical team contact must be available during this week to answer any supplier questions. Even though the scope should be perfectly clear, it’s still possible there are technical questions and the tight timeline means answers need to be quick. If the only person who can answer those questions is on vacation, the auction becomes an extremely frustrating experience for everyone.
Here is the information needed to build and publish a straight-to-auction event:
- Name & Description of Project: The name of the project and a brief description of the materials/services to be bid.
- Budget / Ceiling Dollar Value: The maximum dollar amount allocated for this project. This represents the highest bid you are willing to accept. Bidding will start at or below this specified amount (for an English/Dynamic auction). While a straight-to-auction can be run without a ceiling, it’s extremely risky and not advised.
- Date Results Needed: The date by which you need to receive the auction results (best practice means the need by date should be at least eight days from submission to allow an experienced e-auction team a day to build the auction).
- Work Start/End Date: The dates when work must start and be completed. Alternatively, this is the date a shipment is needed when doing a straight-to-auction for a product.
- Qualified Suppliers: Organization, Contact Name, Email, Phone.
- Award Structure: If applicable, how will the award be structured and divided between suppliers?
- Relevant Files / Documents Related to the Project: Scope of Work, Terms and Conditions, Safety & Health Document, Pricing Schedule
Best Straight-to-Auction Categories
The best categories for going straight to the auction are the “check the market” or “who has resources” categories, also covered in this article (number 2 on the list). These are basically when the buyer needs something regularly and different suppliers have it available, or what is also known as a spot buy. Here are a few specific categories I’ve seen run this way:
- The fish needed in the company cafeteria next week (run weekly)
- Utility line/pole repair or new developments coming on line in residential areas (run approximately monthly)
- Logistics freight lines, either standard milk runs or ad hoc freight queries
- Labor crews for tree-trimming
- Possibly purchasing a bunch of vehicles without many requirements on what type of vehicle is needed (i.e. who has trucks on the lot?)
All of these categories are quick, clear, very repeatable, and have the potential to check every box in the four requirements. In many ways, these are also the “traditionally a good e-auction” categories, so this is a decent place to start an e-auction program while you’re learning the ropes and working up to more complicated categories.
If you’d like to talk about your straight-to-auction program, or anything else, let’s chat. If you’d like to get these articles weekly straight to your inbox and never miss one, sign up for my newsletter.
My book, Transform Procurement: The Value of E-auctions is available in ebook, paperback and even hardcover format: https://www.amazon.com/dp/B0F79T6F25
My chapter in the powerful anthology Femme Led: Hard-Learned Lessons from Women in Leadership is now available in ebook and paperback format: https://a.co/d/0bOzma8F
