Month: February 2019

Global public procurement spend is estimated at around $8.5 trillion USD annually.

While that number sinks in, consider that public procurement represents an average of 13% of GDP and makes up about one third of total government expenditures in OECD countries.

It is hard to truly fathom the impact of this spend on individuals and businesses around the world. It is equally mind-boggling to think that behind these massive numbers are procurement professionals working diligently to ensure transparency, fairness, competition, and best value for public funds.

Public procurement month, designated by NIGP, presents an opportunity to recognize the importance of this work and the impact it has on our society. 

The impact of public procurement

At Bonfire, we are proud to work hand-in-hand with public procurement teams to modernize their sourcing process, a partnership which gives us a front row seat into the crucial role that procurement teams play in delivering the services and infrastructure that make up our public lives.

Procurement remains behind the scenes for the most part (and let’s face it — for most public officials, ending up in the headlines is something to be avoided at all costs). That’s why it’s important to take this time to promote the ‘good news stories’ of procurement! 

Learn from peers and advance your profession

We’re celebrating this month by bringing you an educational webinar presented in partnership with leading practitioners in the field. 

Invest in your procurement function for better outcomes organization-wide

Special guest: Paul Brennan, founder of ProcurePath and Director of Purchasing for County of Rockland
Procurement is gaining recognition as a strategic value driver in the organization, but many procurement teams still struggle to get funding for tools and resources to improve their own process. Paul Brennan will bring his expertise from 25 years as an educator, practitioner, and champion of the public procurement professional to provide advice to procurement teams on advocating for the support they need to thrive— whether training resources, technology, or other key investments. Watch the webinar on-demand now.

Happy procurement month! Whether it’s taking in a webinar, hosting an open house, enjoying cake with colleagues, or one of these creative ideas, we hope you take the time to celebrate your impact.   

Anyone who has experienced the adrenaline rush of participating in an auction — whether in person or vicariously through popular shows like Storage Wars — knows that the rapid-fire competition and the promise of getting a good deal are hard to resist.

Reverse auctions provide that same thrill in public procurement with a twist — instead of participants increasing their bids over time to win a good/service, they try to outbid each other by decreasing their price incrementally to win the business of the procuring organization.

For a quick primer on reverse auctions in the public sector, see last week’s blog Demystifying Reverse Auctions in the Public Sector.

Reverse auctions can be a highly effective tool for public sector procurement teams to achieve best market value and save time on lengthy negotiations. However, they are not widely used thanks in part to some pervasive myths.

Here, we take a look at the truth behind three common misconceptions:

Myth: Reverse auctions are a form of bid shopping.

There’s no question that bid-shopping is an unacceptable practice in the world of public procurement. However, the two are not the same.

Bid-shopping occurs when the buyer seeks out a lower price from a vendor by privately revealing another vendor’s price (without that vendor’s knowledge or consent). In contrast, reverse auctions give all vendors access to the same information at the same time. For that reason, reverse auctions are a fair and transparent practice (The Procurement Office).

The benefits of this transparency extend to vendors, too. Vendors report that reverse auctions provide an even playing field and take the guesswork out of pricing that often occurs in a traditional bidding process.

Myth: Reverse auctions favour larger vendors.

There’s a lingering concern that reverse auctions shut out smaller players. In fact, the research disproves this: in a survey of reverse auction activity at four agencies, the United States Government Accountability Office found that 86% of auctions awarded (valued at more than $22 million) went to small business (Government Accountability Office).

Reverse auctions make it easier for small businesses to compete due to the low barrier to entry and greatly reduced time investment. And when you consider that eBay has been around since 1995, concerns about vendors’ technical ability to participate in an online auction process are receding.  

Clear and proactive communication with all vendors, large and small, is a necessary prerequisite to a successful auction. Teams can take the following steps to assuage fears about vendor participation:

• Clearly communicate how the process will work, from posting to award, and the logistics of participation;
• Choose a simple and easy-to-use reverse auction software platform;
• Consider holding a practice event to ensure vendors are comfortable with the software;
• Answer questions to minimize the unknowns; and
• Be available during the auction by direct phone and email, in order to address any questions as they come up (NASPO).

Myth: Reverse auctions are an unsustainable practice for cost-cutting.

Another pervasive misperception is that reverse auctions yield unsustainably low prices, resulting in a short-term gain that backfires in the long run. However, both private and public sector reverse auction activity shows significant time and cost savings over successive years.

Massive cost savings, such as this school board’s 64% savings on their hamburger patties contract, are certainly possible with reverse auctions in their first use, as you can expect a large margin to be cut off the purchase price. In subsequent uses, you cannot expect the same magnitude of decreases, or your vendors would soon be out of business. Nevertheless, if used judiciously, competitive bidding through reverse auctions ensures that buyers get the best possible price at that moment through real-time market pricing (Reverse Auction Research Centre).

Reverse auctions are a proven tactic for procurement in the long-term — not as a golden ticket, but as a complement to your overarching procurement strategy.

Ready to learn more about reverse auctions?

Join our upcoming webinar Demystifying Reverse Auctions in Higher Education Procurement on February 21 to learn more about the process and methodology of reverse auctions in the public sector, including:

• Strategies for integrating reverse auctions in your procurement process, from commodity bids to more complex RFPs;
• Tips for getting started with reverse auctions; and
• Real-life examples of successful reverse auction projects.

Real-time reverse auctions can be a significant source of savings — both in time and money — for public procurement teams. They’ve been recognized as a legitimate public tendering format in the US since 1997 and used in federal and state procurement since 1999.

However, twenty years later, reverse auctions continue to be underused in the public sector.

What are reverse auctions?

Reverse auctions (also referred to as eAuctions) are an online, real-time purchasing technique in which vendors present successively lowered bids during a scheduled period of time. While ordinary auctions see bidders competing to win a product or service, in reverse auctions, two or more vendors compete to win the procuring organization’s business.

The goal of reverse auctions is to obtain the best price by encouraging competition among vendors. They are conducted using automated reverse auction software.

Reverse auctions typically occur at the end of a thorough purchasing process. Their success relies on clear specifications and a good understanding of the market. Like any other purchasing technique, they are not a silver bullet! But used judiciously and strategically, they offer significant benefits to your procurement function.

Why run reverse auctions in public sector procurement?

• Cost savings. In the first use of reverse auctions, initial savings are typically around 20% (although savings of  64% and higher are not unheard of!) Whether or not you see significant savings every time, using a reverse auction ensures that you are achieving the best market price at a given time. 
• Market intelligence. The process gives buyers insight into where vendors stack up in the marketplace, as well as the strengths and weaknesses of certain vendors.
• Reducing procurement cycle times. Reverse auctions allow teams to compress the timelines of lengthy negotiations, and reduce the administrative burden on both buyers and vendors.
• Transparency and fairness. Reverse auctions provide all vendors the same information at the same time. For vendors, there is less guesswork on pricing. For organizations, there is a reduced opportunity for favouritism/bias, or the influence of a persuasive salesperson to impact the decision.
• Thorough documentation. All bids are recorded and cannot be manipulated, ensuring a thoroughly documented decision.

Getting started with reverse auctions

With these benefits in mind, many procurement professionals are beginning to explore the potential of reverse auctions in their procurement function. To help connect the dots between theory and practical application, join the upcoming webinar Demystifying Reverse Auctions in Higher Education Procurement, with subject matter expert Michael LaGrassa and Bonfire Client Success Lead Rachel Friesen.

Currently the assistant vice chancellor of administrative services at UMass Dartmouth, Michael has extensive hands-on experience with running reverse auctions for public sector procurement (a total of 25 in his career!) Meanwhile Rachel brings valuable technical insight from her experience in supporting dozens of procurement teams in their use of Bonfire for reverse auctions.   

In this webinar on February 21, Michael and Rachel will demystify the process and methodology of reverse auctions through real-life examples. You’ll leave with a plan of action to evaluate the merits of this procurement technique for your organization.

The purpose of a business is to work together to achieve a common goal — however, as businesses grow and diversify, fragmentation and departmental silos are all too common.

This breakdown is a major threat to the success of your procurement function, according to Spend Matters. With procurement bridging the gap between internal stakeholders and external vendors, there is a fundamental need for clear channels of communication and collaboration to ensure well-informed spending decisions.

Thus, anything that presents a barrier to collaboration between procurement and the rest of the organization is a threat to your business’s bottom line — and that includes the notoriously difficult-to-use legacy software applications that many teams are forced to work around.

User-friendly eProcurement software, on the other hand, offers a seamless means for stakeholders to participate in the sourcing process, whether as subject matter experts giving input on individual decisions, or management seeking a clear picture of where money is being spent and how it’s being managed.

Spend Matters notes that easy-to-use eProcurement software presents several advantages:

• Quicker cycle times.

The high training requirements of legacy enterprise software, or stakeholders’ outright refusal to use a legacy system, results in a longer procurement process full of manual steps. User-friendly eProcurement software, on the other hand, makes it possible for internal stakeholders to quickly access proposals and complete their evaluations on their own time. Without the paperwork, the process is quicker and business outcomes are achieved sooner.

• Better working relationships.

It’s not only operational benefits, however. Easy-to-use eProcurement software makes it easier for the rest of the organization to work with procurement, yielding more open lines of communication and better business relationships.

Spend Matters analyst JP Morris writes, “Procurement software that’s easier to use can provide a sense of teamwork that encourages stakeholders to get more involved. It also helps to break down the misconceptions that formal procurement processes are always difficult or time-consuming.”

Better engagement from end users brings many follow-on benefits, including a decrease in people going outside the procurement process and greater recognition for procurement’s strategic role in the organization.   

• More strategic contributions.

User-friendly software makes it easy for procurement to centralize and share information about their organization’s spending decisions with others in the organization. This visibility helps procurement managers to understand their spend and allocate resources strategically. Not only that, it also gives other members of the organizations insight into the ways in which procurement contributes to strategic goals.

“Providing an interface that is accessible, easy to use and insightful for vendors and buyers alike helps procurement team to step out of the shadows and be viewed as a strategic player in the organization, rather than a burden. Results matter and value can easily be reported on.”

If stakeholders across the company don’t have an easy way to interact with procurement, they simply won’t — to the detriment of  your individual spending decisions as well as your overall business operations. Thus, choosing an intuitive and user-friendly eProcurement software is about more than just convenience for the procurement team. It’s a key competitive advantage for the whole business.

Read the full Spend Matters article here.