Optimize procurement scenarios through auctions

What are procurement auctions?

Procurement auctions are an instrument of the tactical purchase and part of the range Source to Contract with that the procuring enterprise a need puts out to tender. There are different models of auctions. In the English auction, bidders – i.e. suppliers – can underbid each other. In the Dutch auction, the price set by the purchasing company increases at a fixed time interval and the first bidder who is prepared to supply at the price then valid is awarded the contract.

The aim of auctions is to increase the intensity of competition among suppliers and thus achieve the best purchasing conditions for the purchasing company. The increase of the competitive situation is caused by a transparent comparison of the bids as well as by a time restriction.

With auctions savings obtain

Procurement auctions can reduce on the one hand the cost price of the commodity to be procured. A study by TCW¹ currently assumes about 8-14% in possible savings. On the other hand, standardized auction formats can drastically reduce the administrative effort. Here, the study’s estimated savings are as high as about 17-38%.

Opportunities and potentials of auctions

The potential of savings is clearly perceived in the procurement market: In the BME Barometer (Electronic Procurement) 2018², around 80% of the companies surveyed stated that they consider a digital tool for source-to-contract processes to be important. However, according to the BME eSolutions Report 2019³, only 43.5% actually use an eTool for auctions, which can lead to significant savings, especially in administrative processes.

This shows that auctions are highly valued by purchasing departments, and with good reason: especially for goods with a high degree of standardization and many suppliers on the market, a procurement auction can help to increase the company’s competitiveness. Not least by exploiting the potential of auctions, purchasing departments increase the value contribution to the company’s success and thus strengthen their position throughout the company.