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Strategy 101: Prospective Supplier Overview

Congratulations!

By being invited to participate in an online B2B Reverse Auction, you’ve been given the opportunity to show your superior value as a supplier and grow your business!

For most manufacturing companies, however, managing online auctions is a daunting and tedious process.  Though the frequency of online reverse bids continues to increase, management of the process often falls upon individual sales or customer service managers with little or no experience in business-to-business (B2B) electronic bidding.

For most manufacturing companies…managing online auctions is a daunting and tedious process

The Four primary reasons we see for the absence of a properly trained resource are:

  1. Employee Turnover
  2. Limited Staffing
  3. Minimal Organizational Focus
  4. Low Prioritization of Effort

While employee turnover is a function of larger organizational issues, having poor focus and lacking trained resources are both avoidable and correctable.
Many organizations lose focus after failing to win any new business in their first few auctions.  During my time managing all online bids for a large manufacturing organization, I can assure you that as the Challenging Supplier, I won millions of dollars in new business for my organization through online reverse auctions and you can too!

As the Challenging Supplier, I won millions of dollars in new business for my organization through online reverse auctions

Winning isn’t easy, though.  In reality, many reverse auctions are initially put together as tools to drive down the incumbent supplier’s prices.  The key word, however, is “initially” because YOU CAN WIN, but it takes a dedicated effort and a solid strategy to take your place as the host’s new supplier.

Strategic Keys For Challengers:

  • Do The Paperwork. This is your primary opportunity to let the buyers understand who you are as an organization and to demonstrate your level of commitment and professionalism. Don’t waste it!  Be diligent, thorough, and timely in your completion of the pre-work.  It is not uncommon for the incumbent supplier to partially or minimally complete the pre-work, so take this as your first opportunity to outshine them!
  • Qualify Your Product. For any product, no matter how specialized or commoditized, the buyer is taking a risk when they change suppliers.  This risk (real or perceived) will make the buyer lean towards keeping their incumbent supplier in place.    To alleviate these concerns, you must take whatever steps possible to get your material fully approved or qualified in advance.
  • Get to the Negotiating Table. As the Challenger, this will take one or both of the forms below:
    1. WIN BIG. Unfortunately, in many cases if the Incumbent does not finish in first place the buyer will give them the opportunity to match/beat the winning bid during the post-auction process, particularly if they only lost by 1-2%.  Winning big may sound undesirable, but Challengers will frequently discover that Incumbents who have been unchallenged for a long period of time are overpriced and unwilling to reduce their margins, or overly confident in their relationship with the customer.
    2. WIN STRATEGICALLY – Analyze the bid for strategic options. Is there a particular product or delivery location in which you have a known competitive advantage, or would benefit the most greatly?  If so, strategically target that portion of the business.  It is very common for partial awards to be given, and winning a strategic partial or secondary supply position not only helps you now but also better positions you to win it all during the next bid process!
  • Be Smart, but Be Flexible. Pricing in reverse auctions will frequently drop below your pre-determined “stopping point” in just the first two minutes.   If this happens you must be able to determine if (1) these new price points are bad business for you, or (2) you did not have a proper understanding of market pricing.  If it is the former, STOP.  If the latter, you may want to consider lowering your price floor.
  • No Sniping! Sniping is the practice undercutting your competitors at last second to win a bid.  This is not eBay.  To prevent sniping, almost all (if not all) reverse auctions auto-extend when a new bid is placed within the final 2 to 3 minutes.

 

AFTER THE “CLOSE”

When time and extensions finally expire, a few minutes are typically allotted to allow participants to report any technical problems that prevented them from entering a bid.  Auctions will frequently agree to re-open the bid in these cases, so don’t hesitate to ask if you want a chance to lower your bid.

Having been resolved, the Auction will be officially “closed.”

NOW THE REAL NEGOTIATIONS BEGIN

After the auction, the buyers will typically take 1-2 weeks to “review the results.”  In rare cases, a simple announcement will then be made stating the low-bidder has won, but most commonly the procurement team will begin post-auction negotiations with the incumbent and one or two challenging bidders with the best value propositions.

Everything you have done up to this point was to earn a place in the post-auction negotiating process.

Effective strategies for managing the post-auction negotiations vary greatly based on a number of factors including the differentials in bid pricing, the incumbent’s willingness negotiate, and the perceived risk of making a change in materials or suppliers.  Because staying with the current supplier is typically the preferred or “safer” path, from a challenging position you will most likely need to take action to give the customer strong motivation to make a change.

We will be detailing various scenarios and specific strategies for effective management in an upcoming article, but please don’t hesitate to contact us if you have any specific questions that need to be addressed today!

 

 

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