e-Three levels the e-auction playing field

With web-based e-auctions for procurement of goods and services set to grow at around 75% pa for the next three years, according to analyst AMR Research, new company e-Three says it has the answer for suppliers, as well as for buyers. The company, set up by former sourcing and e-auction management firm FreeMarkets execs Jenny Draper and James Anthony – both of which have excellent manufacturing pedigrees – started trading in May 2003 offering suppliers training, help and software tools to maximise their outcomes in live e-auctions. It’s the first to set itself up solely to support the supplier community, and notably SMEs, rather than buyers, although it’s now gone on to introduce equivalent services for buyers too. e-Three’s aim, says Anthony, is to redress the balance which has to date been very much in favour of buyers who have been dictating the terms. “Manufacturing suppliers’ margins are being squeezed by e-auctions,” he comments, “and they won’t go away. So we’re providing an independent service and appropriate software that helps them maximise their advantage – get them the best possible price – through the experience and the contacts we have.” He insists that e-auctions and his company’s services are appropriate for any material “that can be properly defined and for which there are several potential suppliers.” And that absolutely includes complex production components and assemblies – as well as the conventional understanding around commodities and indirect materials. “How they’re then pulled into the organisation, whether that’s through MRP, or a call-off mechanism, or under VMI [vendor managed inventory] or whatever, doesn’t matter,” says Draper. “The auction could, for example, be for instrument clusters in the automotive sector, and the bidding suppliers would be putting in a specification and a design. The e-auction is then about assisting with the sourcing decision, with price being only one of the factors for the buyer.” “But the raison d’etre for e-auctions is simply to define that price, so that the buyer quickly gets a portfolio of options. Other factors for him would then include supplier performance history, quality, logistics, contractual details and so on,” says Anthony. He confirms that most activity to date has been on the commodities side. “The reality is that because commodity and indirect materials e-auctions are easier to do, and more buyers and suppliers are familiar with them, that’s where most of the spend is. “But more strategic e-auctions are coming. We’ve done bids for some hugely complex things – like a power plant in Oman costing $40 million.” Draper insists that e-auctions are on a growth curve and that suppliers had better get savvy pronto. “Most organisations spend between 30 and 60% of their turnover on procurement, and in the current economic climate the same organisations are looking to reduce this cost by 10—15%. Buyers are embracing e-auctions as the means to achieving this, and suppliers need to be trained if they are going to become more competitive and successful in what is a very dynamic market place. “In some industries, electronics for example, 20% of procurement is conducted via an e-auction, and it will only grow. Suppliers that fail to understand how to participate risk severely damaging their business and being left behind in what will be a multi-billion pound online marketplace.” Services on offer – S1, S2 and S3 – deliver increasingly comprehensive assistance for suppliers, and equivalents for buyers – starting at £600 for a day’s training, but moving up to £5,000 for on-site assistance and active hand-holding, and then bespoke and annual subscription services. With S1, for example, “suppliers find out what they are and get rid of the fear factor,” Draper. “We take them through tactical bidding strategies, get them to think about their competition and how to position themselves. Remember, they could be bidding for £10 million worth of orders and the e-auction itself is all over in 30 minutes to an hour.” Anthony admits the equivalent buy-side services are “a ‘me-too’ operation.” But he adds: “Suppliers need to understand that e-auctions can deliver an average of 15% savings, they cut the average cycle time of negotiations by 50% and they’re growing annually at 75%. So they need to learn how to bid and win at the best price on the sales side. But they also need to consider applying the processes and systems on the buy side with their own suppliers too.” As for lean thinking, and the place for e-auctions, Anthony says: “We all have to face the fact that they are in a marketplace reality. E-auctions are still about negotiation, the same as any other business activity, and this is a tool that does it more efficiently. Remember, e-auctions are not just about price; that’s important, but there are almost always other factors. “This is far more efficient and dynamic than the conventional processes. What used to take an average of four weeks can now be done in half an hour, and then with the price defined, the buyers can look at all the other parameters that matter in a lean, or just in time environment.”