3 Ways eNegotiation is a Better Alternative Than Reverse Auctions for Purchased Services.

If you are looking for ways to dramatically decrease the costs of purchased services, you may want to consider eSourcing as a way to do this. There are two types of eSourcing solutions you may consider which and at first glance appear very similar; however, there are some key differences that could impact the results of your negotiation in more complex spend like Purchased Services.

An e-negotiation is a unique sourcing solution that offers its users a more effective method of directly negotiating with vendors in real-time. It often gets mistaken for a reverse auction but there are several key differences between an e-negotiation and a reverse auction. Before discussing these differences, let’s first look at how the two are similar, because both solutions offer some valuable benefits.

  • Technology: Both e-negotiations and reverse auctions utilize a technology platform which allows users to distribute and collect information electronically. This is a huge time saver over traditional methods. But it’s more than just “glorified email.” Most e-sourcing platforms today have robust functionality that enable users to create detailed Request for Proposals (RFPs) backed by analytics that allows a user to easily compare competing proposals. In most cases, an RFP will precede an e-negotiation or reverse auction event.
  • Fast Results: Each sourcing solution allows the user to negotiate with multiple vendors simultaneously, rather than the iterative process associated with traditional negotiation methods. This means you can achieve results in far less time, usually under three 3 hours.
  • Transparency: Both solutions promote transparency and anonymity among the participating vendors. These are two very important aspects for all users. Transparency helps to maintain a level playing field among participants, ensuring that each receives the same information and no individual vendors receives any preferential treatment. At the same time, the e-sourcing platform preserves anonymity among the participants, ensuring confidentiality of information and protecting against collusion.
  • Savings: Both reverse auctions and e-negotiation can produce significant bottom-line savings as a result of the competition generated by these dynamic events.

While these are a few of the main similarities between reverse auctions and e-negotiations, they also have three key differences that are important to note if you want to increase value in your negotiation process for purchased services.

  1. It’s not just about price: Arguably the most important difference between e-negotiations and reverse auctions, is that an e-negotiation allows the user to address any aspect of the vendor’s proposal during the event, while most reverse auctions focus simply on price and do not take into account many of the other strategic elements of a negotiation. During an e-negotiation, the sourcing team can provide vendors with specific feedback to address not only their price, but also any other proposed term such as quality of service, delivery, or performance. Reverse auctions don’t offer the flexibility that e-negotiations do.
  2. More dynamic: An e-negotiation is much more dynamic and enabled by a messaging system that is built right into the platform. Reverse auctions that typically focus solely on price, have little to no communication between the parties involved throughout the event. The sourcing team is often just an observer, waiting for the final bid to come in. In an e-negotiation, a user can use this messaging system to have direct and open dialogue with each participating vendor in real-time, throughout the duration of an event. This allows the sourcing team to focus on key points, which may be different for each participant, and allows vendors to provide additional detail regarding their counter proposals.
  3. Overall value: Since the typical reverse auction focuses only on price, bidding is driven mainly in response to rank or a leading price, depending on what is visible during the event. Either way, vendors only have the ability to respond to a change in price. Buyers, in this scenario, are usually obligated to award to the lowest bidder at the conclusion of the event, since price is the sole consideration. Obviously this ignores the qualitative aspects of the vendors’ proposals. In an e-negotiation, the Buyer is able to select one or multiple vendors as finalists based on their overall value. The finalists can then be brought on-site for presentations and further evaluations. E-negotiations enable a much higher focus on the vendors’ qualitative offerings that reverse auctions cannot and are much more conducive for longer term, more strategic relationships.

In summary, both solutions present some valuable benefits for the user but there are some key differences. An e-Negotiation is not a reverse auction, and each solution has its own application. Reverse auctions lend themselves better to materials purchases or commodities contracts that contain simplified terms, or where there is little qualitative differentiation between competing proposals. However, for categories like those within Purchased Services, e-negotiations provide the user with much improved negotiating capabilities to achieve optimal results.. Medpricer provides its customers a unique and effective approach to addressing Purchased Services spend; combining analytics, process, and category expertise that culminate with an e-negotiation solution  that results in 24% average savings with a 40% faster cycle time.