Can E-auctions deliver value without spoiling long-term supplier relationships?

From the late 90s e-auctions have evolved into sophisticated buying tools that cover everything from signage and stationery to dairy ingredients and butter, with e-procurement expert ScanMarket citing 12-18% savings across all UK food categories.

E-procurement generally has the advantage of allowing food firms to compile data on suppliers, buyers, purchasing orders and invoices in one online ‘cloud’, where this benefits large food firms with multiple buyers in particular.

Keeping suppliers honest​

Paul Ellis, md of e-procurement specialist Wax Digital (clients include Allied Bakeries, Thorntons, Twinings and Silver Spoon) told FoodManufacture.co.uk that e-auctions are a good way of “keeping suppliers honest and drawing-out best value”​.

Most UK food firms and retailers run auctions where pre-qualified suppliers compete on price, and Ellis said the recession had led to growing interest in e-procurement. “When you’re making loads of money, you’re perhaps not so attentive to costs. When you’re not, you look hard at your supply base.”​

Whereas an e-auction might only take 45-50 minutes, said Henrik Balslev from Scanmarket, face-to-face meetings with suppliers to ink contracts could take days.

Balslev said e-procurement software could also streamline the tender process to decide auction candidates, with suppliers invited to participate logging-in and providing responses within an agreed timeframe.

This allowed buyers to monitor supplier responses in real time and compare answer quality to score suppliers, Balslev said, where systems included inbuilt scoring and weighing analyses.

Before, he added, buyers had to send out Excel spreadsheets, then possibly chase suppliers over missed deadlines, before manually compiling and compare partial responses or those supplied in varying formats.

Non-price factors absent​

Given the commercial sensitivities that e-procurement involved, food firms are tight-lipped when discussing its use, but one chilled foods firm md said:

“​We are asked to participate in private label retail and foodservice e-auctions on a regular basis. We normally decline, because making identical products at very low price points is not usually very profitable.” ​

He added that using an e-auction told potential suppliers “that they are not long-term commitments and that non-price factors: supply record, technical standards, financial strength, are not really considered during the decision-making process”.​

A Greencore spokesman said the firm used e-auctions “where appropriate”​ for parts of its portfolio, while the spokesman for another large food firm said auctions were important, but that identifying suppliers and visiting their facilities still took time for buyers. “Sometimes, it’s just easier to pick up the phone."​​​​

Beat suppliers with stick​

But Balslev said it was a “misunderstanding”​ that auctions are only run on price, adding that tailored events could also weigh variables such as delivery timescales, credit terms and product quality.

As a“tool in the buyer’s toolkit”​ he said auctions were indispensable, but admitted that certain unit volumes were necessary for an event to be worthwhile to either party, while bidders needed to find the event attractive and have a clear product specification.

One obstacle to uptake was traditional buyers, Balslev said, who if they didn’t relish “beating suppliers on the head with a big stick”​, at least enjoyed the thrill of face-to-face negotiations, where e-procurement suited more analytical personalities.

Ellis said Wax Digital had also seen cases where firms awarded contracts to companies that hadn’t won auctions, which he said was unfortunate. “We want a fair process where the winner wins, although that said the buyer makes its mind up, and is free to do so.”​