Procurement Choice: E-auction or RFP?

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By: Beroe Inc. --

20 September, 2020

Procurement Choice: E-auction or RFP?
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With inputs from Ddivya Kumar, Senior Analyst

procurement-choice-e-auction-or-rfp

E-auction, or reverse auction, involves real-time electronic competitive bidding where the buyer requests for quotation and suppliers bid for business, in an attempt to decrease the selling prices until a true market price has been reached. It is the opposite of the forward auction wherein the buyers compete to secure the goods or services by bidding the price upward.

E-Sourcing tools offers flexibility as well as better price discovery, but the question that continues to face Procurement teams is when to use E-Auction as opposed to when it would be best to take the RFI/RFP route.

In case of E-Sourcing, Best-In-Class companies start with RFP process followed by E-Auction.

In the RFP process, all the details pertaining to the requirement is collected from the potential suppliers and analyzed to get market pricing. This process ensures less risk and success of auction even; whereas, E-Auction is used for standardized products.

  • E-Auction is used for categories that involve standardized product specification.
  • RFX is used for categories involving high level of complexity and limited supplier base.
  • Best-in-Class companies follow a hybrid approach where initial RFI, RFP is done via the tool followed by E-Auction of components once requirements are fixed.

To E-auction or Not

E-auctions have their own advantages, but at the end of the day it does not offer “one size fits all” type solution. If not seen only from the prism of price, a well calibrated approach to e-auctions can still deliver benefits.

Highly standardized products or services with less differentiation are the categories that could be successfully sourced through E-Auctions.

On the other hand, indirect categories and products/services that require after-sale services are least sourced through E-Auctions.

Below are the indicative list of key categories that can be successfully sourced through E-Auctions.

Direct Categories

Indirect Categories

Raw Materials

Temp Labor & Recruitment Services

MRO & Equipment

Telecom and Courier

IT Hardware

Consulting

Packaging Supplies

Legal Services

Freight & Transportation

Creative Agencies and Advertisements

Office Supplies

IT Outsourcing, IT Software Licensing, IT hardware - Servers, desktops, laptops, printers etc.

 

Below is the table that indicates when each E-Sourcing tool is more appropriate.

Characteristics

E-Auction only

Use of RFP Process and E-Auction

Use of RFP Process only

Category Appropriateness

In categories that involve standardized products, buyers can directly run an auction by inviting the suppliers to the event

For categories with less customized specifications, and variables other than the price, buyers can use eRFP to pre-qualify suppliers and obtain quotes before running E-Auction event.

Buyers can opt for RFP process for categories with highly customized specification where only a limited number of suppliers have the capabilities.

Critical Variables

Predominantly price/ volume

Value and price

Value only

Industry competition

High competition

Medium competition

Less competition

Supplier availability

Large pool of suppliers

Many

Few

Supplier relationship

Transactional

Limited

Strategic

Supplier Capabilities

Low

Medium

High

Supply lead time

Short

Medium

Long

 

 

 




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