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First, you have the beginners: they simply put their goods on the auction site eBay with a minimum starting bid and then wait. This usually goes badly, and they end up having to sell for the minimum price. Then you have the more advanced users: they think about the best time for the auction to end. At five in the morning, most people are asleep; at nine at night, many are multitasking: streaming a show while simultaneously checking their cell phone – a good time for the auction to end. If they’re lucky, this may even lead to a bidding war that drives up the price. And then you have the pros: they think of everything – starting price, timing, bidder communication. They get the most out of each auction and are able to do so thanks to their experience.

Gaining Experience – Developing
Strategies
And it is precisely this experience that our employees gain when they initiate e-auctions for LANXESS. Sabine Deppe, Global Procurement & Logistics Group Function, heads the newly created eSourcing Center of Excellence. When it comes to strategic digital procurement, her team is on the case. In the time since its inception, they have conducted numerous e-auctions together with other purchasers: “For example, we invited suppliers to submit quotes for raw materials on the digital chemical marketplace Pinpools for the first time,” she says. “These auctions are similar to those on eBay, of course. Just the other way around: we set our starting price and watch as the bidders underbid each other.” And it works. “On average, we see a savings potential of 5 to 7 percent when purchasing via e-auctions.” Sometimes even more is possible. “We’re at the beginning of this process and still learning,” Deppe admits. The team has, for example, observed a variety of bidding strategies – the aggressive ones offer a low price right at the beginning, while others only enter in the final phase. “We’re analyzing the process, gaining experience, and stand in close contact with the Commercial Excellence team to share what we learn,” she says. The initial results are already impressive, however: “Our best success so far was achieving savings of up to 20 percent.”

Leveraging Potential
And that’s just the e-auctions. Another larger project that she and her team have just completed as part of Procurement Excellence is the first global digital mass request for quotes (RFQ) for over 2,000 chemical materials that the company requires that was sent out to over 1,000 suppliers. This corresponds to a purchasing value of roughly 280 million euros. The team quickly identified the products, some of which are only required in small amounts or aren’t purchased on a regular basis. To initiate the RFQ, the team first had to work with other buyers and the business units to document the specifications for each location in detail. “It was an enormous effort – everyone involved did a great job in a short time,” says Deppe. “And the suppliers, especially the chemical distributors, welcome this unprecedented level of global transparency.”

Software Successfully Used
The team used a digital solution, the Coupa Sales Optimizer, to share data with suppliers and evaluate their quotes. “This software enabled us to efficiently evaluate the more than 6,300 price points we received.” This worked extremely well – it would never have been possible to evaluate such a large amount of data so quickly using Excel. “We were able to recreate the different contract awarding scenarios quite well in the software.” The solution provides customized analyses based on the criteria specified. For example, it weighs the cost of the necessary requalification of a supplier against the supplier’s price advantage. The results generated by the application were verified by the buyers. If new suppliers had to be qualified, for example, they passed this information on to the BUs. “Some of them were old acquaintances who came back into the picture as suppliers as a result of this RFQ,” says Deppe.

Psychological Effect: Lower Prices
Interestingly, simply initiating a global digital RFQ alone caused existing suppliers to lower their prices: “Doing this put pressure on them,” she says. In total, the team identified potential savings of around 20 million euros. 10 million of this total was generated faster than planned. “That was due to the excellent collaboration with the BUs,” she says. The team is currently planning the next regional RFQs for Europe, North America, and Asia. “We want to keep the pressure on the market high and initiate further RFQ rounds.” In the future, the team also wants to use AI-based tools. These could be particularly useful for sending automated replies to suppliers in the event of queries regarding the digital interface. “In this regard, the IT GF team is providing us with outstanding support.” She is extremely satisfied with the results so far. “We’ve seen that both methods – the digital mass RFQ and the e-auctions – work and also benefit the BUs financially. We’ve also gained new insights that are valuable for our colleagues in marketing and sales throughout the group.”

Who knows what else will be possible once the GPL GF team has mastered the full range of digital RFQ strategies. We look forward to finding out!