E-auctions at MPP

Persistence pays off

Mauricio Buchdid reports:
For around ten months, I have been trying to establish electronic auctions more and more. At first, I had great difficulty persuading suppliers here in Brazil to participate in my e-auctions.

Many of them work according to a “monthly price list model” and have never had any experience with electronic auctions. I had to do a lot of persuading and convey the necessary knowledge to them as simply as possible. That was a big challenge. On the other hand, these tools also offer advantages for suppliers: they have many more opportunities to win orders.

At the same time, of course, there is also increased pressure to be undercut by other companies and to have to lower one's own price expectations.

Different types
We have various types of e-auctions at our disposal, with the reverse e-auction being the one we use most frequently. In this case, we set a maximum price and several competitors submit descending bids in order to win the contract. This is a flexible solution. During the auction, suppliers can view their bids and their position online. As a rule, suppliers know their ranking, but not the actual bid prices of their competitors. The big advantage of this auction is that we always end up with an offer.

The outcome of the Dutch auction strategy is somewhat more uncertain. We usually use it when there are fewer approved suppliers. In this case, the auction starts with a low price, which is gradually increased. The starting price is based on the supplier's reference price and the average price of the previous year. But such auctions are tricky. I once planned eleven rounds for an auction and took a very aggressive approach. But one supplier dropped out after the tenth round. So there is always the risk that there will be no offer in the end and the deal will fall through. That's why the planning for this auction has to be much more decisive. The pressure to accept the offer is on both sides. If a supplier accepts the current offer, the auction automatically ends with a winner.

Strategy worked
But it can also work out well. When I had to buy a raw material for which there were only three approved suppliers, I decided to use the Dutch auction strategy. In the first step, I requested a reference price (RFI: Request for Information) to define the auction target.

We had also planned to reduce the price by 15 percent. So we set our minimum starting price. With each bid, we gradually increased our offer, and the supplier had time to accept or reject it. In the end, we were very satisfied with the result. We were able to reduce the price by 11 percent compared to the reference price and even by 18 percent compared to the average material price in 2024.

Time-consuming preparatory work
However, preparing for this auction was time-consuming. First, we had to explain this different form of e-auction to the three suppliers. We arranged a meeting with each supplier to remind them of the date and time of the auction. It was also important that only employees with decision-making authority on the supplier side participated in the auction. We established auction rules and coordinated with the stakeholders. The suppliers had already been trained in the use of the tool.

E-auctions have led to significant cost savings for us in Latin America. Currently, this method covers about six percent of the total expenditure of the MPP site of the IPEL portfolio. The following points are crucial factors for the success of e-auctions: defining suitable materials, maintaining a qualified supplier base, training, educating bidders, coordinating with stakeholders, establishing clear rules, and ensuring clear communication.

Above all, the exchange of experiences has proven to be extremely valuable for me. I was encouraged to pursue this path. Understanding the process, learning from initial attempts, and adapting the concept to my specific requirements were crucial to my success. It was also important to me that questions about e-auctions, such as choosing the type or using the right tool, were answered directly by the Center of Excellence or the Ambassadors team. This created a truly global community.

E-auctions bring greater transparency, competitiveness, and more dynamic negotiations. Now I want to work even more closely with my sales colleagues to share knowledge and insights. Our goal is to develop a variety of strategies that will open up new business opportunities for the company.