Case Example: An
e-Sourcing Reverse Auction
Global Pharmaceutical business.
e-Sourcing Auction Category
The category to be auctioned was the information leaflets provided in the packaging of every pharmaceutical product.
Background to the Reverse Auction
e-Sourcing e-RFIs had been successfully delivered for Fleet and Stationery categories using the client's new Procuri e-Sourcing platform, which had been introduced as part of the global purchasing / procurement transformation programme, but the client had not yet used e-RFQs or Reverse Auctions.
Prior to the introduction of the e-Sourcing platform a traditional Request for Quotation had indicated that consolidating the leaflets spend across the entire group could yield savings of 25%. Knowing this it would be interesting to know what additional value a reverse auction could deliver, above and beyond what had already been identified.
For reasons of confidentially this event is many years old and the precise date, and names of the suppliers, customer and locations have been omitted.
Prerequisites for the e-Sourcing Event
A pre-requisite for each of the suppliers to register for the auction was to accept a confidentiality agreement and the client's new model contract for packaging, which had been developed during the same global procurement / purchasing transformation programme.
Auction Event Lot Structure
The leaflets spend was segmented into three lots:
- Leaflets to be delivered to the manufacturing plant in country 1.
- Leaflets to be delivered to the manufacturing plants in country 2.
- Artwork Change Costs
The event was configured so that suppliers could bid for both Lot 1 and Lot 2 or Lot 1 or Lot 2 leaflets. The case example doesn't show the results of Lot 3, the scale of which was relatively minor.
Auction Bids for Lot 1
The screenshot above from the reverse auction for Lot 1 shows competition between Supplier 1 (in blue) and Supplier 2 (in green). Supplier 3 (in red), tried to explore how much further below them the suppliers ranked 1 and 2 were, but after twenty minutes reached the point beyond which they chose to continue no further. Supplier 4 (in orange) weren't expected to compete for this lot.
For information the period of time shown in pink, is the time after the auction was expected to end and was extended by subsequent bidding activity.
Auction Bids for Lot 2
The screenshot from the auction for Lot 2 (below) shows Supplier 4 (in orange) attempting to close the gap with Supplier 1 (in blue) to bid for the Lot 2 leaflets. Supplier 1continued to bid, even though they were in overall first place to ensure that they ranked as the lowest priced supplier for as many as possible of the Lot 2 leaflet families on an individual basis – because they were not content just to have the lowest total price for Lot 2 in total.
Savings from the Reverse Auction
Prior to the auction the budgeted spend for leaflets in both France and the UK was € 0.5m per annum. As mentioned above, traditional global purchasing / procurement techniques indicated a likely reduction of circa 25%. However, the auction delivered a total saving of 33% .
e-Sourcing Platform Payback From the First Reverse Auction !
The additional 8% savings delivered by this, the first auction, paid for the subscription cost of the e-Sourcing platform for the entire year - twice over.
More Information on e-Sourcing
© www .interim-management-purchasing.co.uk June 2012
A global leader in the polymer engineering protection of civil engineering structures.
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