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Procurement Tips:
A reverse auction alone does not ensure a sucessfull procurement or sourcing operation. uniTender's reverse auction platform is just a tool that may be usefull in one of the steps of a procurement process: the negociation phase.
Here are some guidelines for a successfull purchase operation:
1. Plan the Procurement Process
Spend some time planning the procurement process. Planning will save you a lot of effort later in the process. Major issues to be addressed are:
- Timetable for the different steps of the procurement process.
- Full extent of works, products and services required. Do not leave details to be solved later.
- Seek advice and input from other people in the organization in order to validate contract requirements.
2. Identify and Enroll Stakeholders
A critical success factor for procurement is to envolve the right people:
- Who knows how to evaluate technical aspects of the products or works?
- Who will benchmark prices and other commercial conditions?
- Who will define legal safeguards and evaluate liabilities?
3. Ensure Transparency
Interviewing potential contractors/suppliers prior to the formal consultation shows transparency and might give you valuable inputs:
- Listen to their company profile, services and strategy.
- Explain them what is going to be tendered, when and how.
- Ask them for inputs on the critical success factors and quality issues for the services or produts you wish to buy.
4. Build an Request for Proposal
The RFP is the key for getting potential suppliers/contractors eager for your business and the reference document for the future relationship with a supplier:
- Show transparency disclosing all relevant information.
- Clearly define decision factors to be taken into account in the final decision.
- Decision factors should not indiciate any supplier or brand preferency.
- Decision factors should not give any obvious competitive advantadge to any supplier, unless strictly necessary.
- Define the number of tenderers to be included in the shortlist. This is especially important to perform a auction later, because if all participants are later invited to an auction, then they see no incentive on presenting competitive prices on the initial bid/offer.
- Clearly define the procurement steps and target timetable, including all the deadlines and formal contacts to clarify doubts from the invited suppliers.
- Define a base (top) price for the contract.
- Define the (non)binding nature of the RFP, shortlist inclusion or auction invitation to safeguard your company, until the final buying decision is made.
- Define your objectives for the purchase or contract, and minimum specifications, but leave room for supplier innovation and alternative solutions.
- Define how bidders should price their submissions, in order to simplify the benchmarking process.
- Simplify pricing submission model. We strongly recommend that bidders are evaluated by a lump-sum benchmark that closely relates to your Total Cost of Ownership. Ask bidders to submit cost breakdown details (that later might enable you to make quantity re-arrangements) but make it clear that TCoO is the preferencial benchmarking indicator.
- Define penalties related to contract performance (delivery times, system availablity, specification deviations, etc)
- Establish contract performance monitoring and auditing rules and mechanisms.
- Make it clear how payments are calculated along the contract. Revenue timming is a major factor that influences the ROI of suppliers. To avoid latter litigation it should be clear what are the milestones that determine when payments are due.
5. Validate The Candidate List
It is extremly important to consider the relationship with potential suppliers. Some suppliers might be clients of your company, and you should consider the potential impact of consulting them or not. Other candidates might be your competitors. Never forget to evaluate the overall relationship with suppliers before inviting them to bid for your contract. Ask inputs from your management and commercial areas, because your procurement process may hurt ongoing deals or company strategy.
6. Managing Relationship with Bidders
- Avoid conversations or any other type of personnal interaction with potencial suppliers once the RFP is out.
- If direct interaction is required, never do it alone. Always issue in written form the summary of these meetings.
- When providing clarifications to bidders, always circulate the same information among all bidders.
- Keep records of all interactions, so that you may show it to internal stakeholders.
- Do not provide extra information to just one bidder.
7. Evaluating Offers and Validating the Shortlist
- Circulate with internal stakeholders all the offer documents.
- Get written evaluations of the offers from internal stakeholders. Summarize them and circulate your final offer evaluation report with them before making it official.
- Validate all information with your management, commercial areas and customer management areas before communicating decisions to tenderers. It is important that your organization have time to prepare how to handle comments or complains from excluded partners or clients.
- Communicate your short list decisions to tenderers and inform them of the next steps and timetable updates.
8. Negotiation: Auction
- Decide the auction information disclosure model: If you think that competitor foul-play is not a risk, you may wish to capitalize on strategic rivalries among bidders by disclosing competitor names in our auction platform; if you think that foul-play might be a risk, do not disclose competitor names; If you think bidder insecurity or eagerness for your contract is high, you should consider using blind auctions (competitor will only know their bid position), this makes them more insecure because they don't have the opportunity to observe their competitors behaviour.
- Decide if it's adequate to have several contractors for different parts of the contract. uniTender.com enables multi-winner auctions.
- Setup a dummy auction, so that bidders may interact with the auction platform before the real thinis. uniTender allows you to setup dummy auctions automaticly so that bidders get familiar with uniTender's interface.
- Determine minimim bid improvements. This is the minimum value that a bid improve the previous bid before being accepted by the platform. The rule of thumb for this value depends if the auction model is lump-sum winner or multi-winner (by item). In a lump-sum auction with several items, a bid for an item is accepted even if the total value does not grant the 1st place to the bidder. In this type of auction it is advisable to demand larger improvements of the price of an item, than in multi-winner auctions. A good rule of thumb is to demand an improvement of 1% of the initial price for an item. For instance: if the best offer you have (before the auction) for an item is USD 10.000, then you should configure the minium improvement for that item at USD 100.
- If your using multi-winner auctions (one different winner for each auction item), then a good rule of thumb for determining the minimum bid improvement for each item is 0.2%.
- Please take into consideration that many suppliers have done this before, and that some sucessful auction strategies are based on wearing out other bidders. This means that the minimum bid improvement (together with auto-time extension) determines the total auction duration.
- Decide auction duration and auto-time extension. It is highly recommendable that auto-time extension is used. Auto-time extension is the mechanism that determines if the auction end at the foreseen time, or if it may continue until no new best bids are placed.
- Please take into consideration that the initially configured time duration of the auction does not really determine the auction duration if auto-extension is used. Is is usually not recommendable to have auction durations over 30 minutes and auto-time extensions over 5 minutes. Please keep in mind that probably this type of auction configuration will translate into a 2-6h auction due to sucessive 5 minutes extensions.
- If you invited bidders from different locations (timezones), it may be adviseable to have longer auction durations and time-extensions. In this case it is also adviseable to demand larger bid improvements.
- We recommend that auctions are scheduled for mid-morning of your/bidders timezone, to ensure that enough working hours are available if the auction duration gets longer than expected.
- Unless you invite bidders from different timezones, it is usefull to calculate the maximum theoretical auction timespan: (initial configured duration) + (auto-time extension)x(initial bid value)/(minimum bid improvement). For example: an auction with initial time duration of 30mins, auto-time extension of 5mins, an initial bid value of USD 10.000 and minimum bid improvement of USD 100 may generate up to 100 time extensions that added to the initial duration of 30mins may lead up to 530mins of auction duration. Please take this into account when deciding minimum bid improvement and auto-time extension.
Disclaimer: This document describes good business practises that might not apply to your specific needs, so it does not constitute counsel by uniTender to your company. uniTender may not be held liable for any losses or damages resulting from the aleged use of any of the suggestions provided in this page. Refer to the uniTender User Agreement for further details.
Simple: This is the key for a dynamic negociation. uT e-Auction platform is intuitive and interactive, allowing newly invited participants to have a confident and active role in the negociation.
Technology: Based on our own R&D, we made sure our uT technology minimizes infra-structure costs, allowing affordable auction prices.
Efficiency: uT e-Auction platform has a lean cost structure focused on the quality of our technology. This allows us to offer affordable prices to all enterprises.
Safety: uT e-Auction platform provided you complete control over competitor disclosure, allowing full configuration of auction transparency, preventing competitor foul-play.
mission is to broaden to all Enterprises the same negotiation tools that Large Corporations have, with affordable, high-tech real time reverse auctions.