Playing the game with Procurement

Cutting costs and cost optimization policies of organizations gave procurement departments more and more power during the last five years. Moreover, they received sophisticated platforms to help them exercise their power in the relationship with the suppliers. Almost every big company has its own virtual space where suppliers are invited to place their bids while observing very restrictive bidding procedures. Armed this way, more and more companies use reverse auctions in the process of selecting suppliers.

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TREND CONSULT SRL




MARIUS DECUSEARA BRANDENBURG

MARIUS DECUSEARA BRANDENBURG

COUNTRY MANAGER at TREND CONSULT SRL

What do selling departments think of all of this? Have they already done something to adapt to this new selling environment?

 

Huthwaite International conducted a global research study to identify the successful auction strategies and define a best practice approach for supplier participation. Their conclusions are the result of 39 in-depth interviews with global and national sales leaders from across Europe, the USA and Australia, d50 per cent of participating organisations have annual revenues greater than $5 billion and all examples were taken from private sector.

 

Huthwaite International’s research confirmed the fact that, from the supplier’s point of view , being invited to a bid is not always good news. The incumbent supplier might be at risk when a bid is launched. When the bid covers the products or services already provided by the supplier, the bid might actually be bad news. The study showed that only in 54.2% of the cases, the incumbent suppliers were successful in securing the contract.

 

Researchers also identified five common traps sales professionals fall into when participating to reverse auctions:

1.       Strictly following procurement’s rules

2.       Believing the lowest bidder wins

3.       Believing the specification is accurate

4.       Thinking the auction is the end of the buying process

5.       Not taking a strategic approach to planning

 

 

Trap one: Strictly following procurement’s rules

 

Many of the invitations to bids include an entire chapter on the procedure to be followed. As a result, inexperienced sellers feel compelled to blindly follow the process. Indeed, an analysis of the case studies highlights that incumbents who followed the process strictly have reason to be pessimistic, as they were only successful in retaining the contract 41% of the time.

 

However, the research uncovered that incumbent suppliers can greatly enhance their chances of success by not following the auction rules set by procurement. Huthwaite uncovered three strategies commonly used when not obeying the rules – all of them sending the message of a powerful position and helping the supplier avoid the lowest price war.

 

The one bringing the best results is to make only one offer – best and final (and labeled as such) – online. This way the supplier asserts a position and keeps it until the end of the process letting the other participants to fight each other.  As Huthwaite International’s research shows, this strategy brought success in securing the contract in 93.3% of the cases.

 

The next strategy in terms of effectiveness consists of making only one offer – best and final (and labeled as such) – offline. The supplier announces the intention of not participating to the electronic bid, but presents a proposal – hard copy and in person – to the client. As the study results shows, this strategy was successful for 85.7% of the suppliers using it.

 

The third strategy is to refuse participation. This is a quite risky one as only 28.6% of the suppliers using it managed to secure the contract. When the product or service was identified by the procurement as being a commodity, the supplier is easy to replace and this strategy fails. On the contrary, when solutions that make the object of the bid are rather unique and there is a small number of suppliers, one refuse might generate a bottleneck in the process and as a consequence the strategy is a success.

 

The solution is to follow the process but not slavishly and, when playing out of the rules, to communicate your intentions and set expectations upfront. If you decide to participate, a single powerful bid can be most effective. However, if there are only three bidders, refusing to participate might be effective, too.

 

 

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TOP CASINOS, LOTTERIES, BINGO AND TURF ACCOUNTANTS COMPANIES (2015)
Scoring Methodology by ERNST&YOUNG


 
#
COMPANY NAME
MCR TOTAL SCORING
 
1 MAX BET SRL 3,1875
2 SERIOUS BET SRL 2,8750
3 BEROE GAMES SRL 2,7500
4 COMPANIA NATIONALA "LOTERIA ROMANA" SA 2,6875
5 GAME WORLD ROMANIA SRL 2,6875
6 RIGHT BETTING SRL 2,6250
7 ROYAL AMEX SRL 2,5625
8 GOLDPREST IMPEX SRL 2,5625
9 NOREBO SRL 2,4375
10 INTERGAME SELECT SRL 2,3750