Purchasing Services Online Competitive Bidding Presentation November 2004

What is an online bid / reverse auction ? Prices decrease The internet facilitates bidding events allows equal footing and confidentiality for suppliers Think of it as industrial, but in reverse and without the chaos and confusion. A bidding event where the Buyer posts a requirement and suppliers “bid” on the opportunity to sell

Why implement ? Online Bidding provides valuable market data. Enables the purchasing process to discipline into the sourcing selection process. All Fortune 500 companies and around 20 states use this technology Online Bidding creates truly competitive marketplaces. Streamlines the negotiation process by using real-time internet-enabled technology.

Is it ethical ?… Is it ethical to show competitors bids and allow multiple opportunities to beat the lowest bid ? Anonymous bidding (though configurable in most tools) All bidders have an equal opportunity to see the other bids All bids must submitted within the same timeframe No one bidder is given an unfair advantage

Successful Online Bidding do’s… Make your business requirement attractive and significant Invite a reasonable number of bidders to your event (recommended minimum is 3) Publish comprehensive and detailed specs. Communicate with suppliers before, during & after Obtain client support (invite to event) Award business to bidder with best value proposition Have ‘faith’ in process

Online Bidding Enables Cooperation Everybody wins when departments consolidate their requirements into a single online bidding event Departments/School centers can publish their unique requirements Departments/School centers can watch “real time” as the bidding event unfolds Costs for the events are minimized and paid by suppliers

Successful Online Bidding do’s… Make your business requirement attractive and significant Invite a reasonable number of bidders to your event (recommended minimum is 3) Publish comprehensive and detailed specs. Communicate with suppliers before, during & after Obtain supplier support (invite to event) Award business to low bidder Have ‘faith’ in process

Successful Online Bidding don’ts … Don’t issue a ‘paper’ quote first Don’t assume the current arrangement is optimal. Look for simpler/better ways to do business. Don’t aggregate items based on your portfolio. Look at the way market is organized. Don’t collect data during events. Don’t get discouraged during supplier training

Online bidding “rules” Designed to communicate the “standards” and “ethics” for utilizing e-auction technology Will facilitate a “repeatable” auctioning process Shared with your buying teams and your suppliers Should be “attached” to all auctions

Online bidding “rules” Once an online auction has been scheduled, bids will NOT accept through any other means. Information given to suppliers regarding the event will be given to all suppliers evenly. Supplier questions and suggestions, Event responses, lot structures, reserve price and other parameters of the event will be communicated evenly to all bidding suppliers. We will not, under any circumstances, enter false or fake bids in an online bidding event to stimulate bidding We will communicate to all bidding suppliers the outcome (whether they won or not) of the online bidding event within a reasonable time period. We will have an online bidding team member available for questions and problem solving during online auctions. We will also have commodity team representation available during all online auctions.

Online bidding “rules” We will structure online bidding events in a manner consistent with our Institution’s Values and will uphold applicable ethical standards. We will consider multiple criteria in addition to price to determine which suppliers will deliver the best overall value to us and these suppliers will be awarded the business. Supplier bids are legally binding offers. Online reverse auction events are by invitation. Only vendors who are capable of meeting the RFP requirements will be invited to participate in our online auctions.

Steps to Run On-line Events… #1 – Define Project & Identify Suppliers #2 – Contact appropriate Commodity Specialist #2 – Develop Strategy & Build Test Event #3 – Hold Pre-Bid Meeting #4 – Suppliers will be trained on application #5 – Address Supplier Issues and Questions #6 – Run the On-Line Bidding Event #7 – Rapid Value Assessment (minutes/hours)

Case Study

Case Study: Event is over and here is what happened: New Supplier Bid: Incumbent Bid: Who gets the award??? Hint: switching costs = nil

Question & Answer