Sprint Leveraging eAuctions to Drive Savings on Network and IT Products and Services:
In Sprint’s Procurement organization, helmed by Senior Vice President and Chief Procurement Officer (CPO) Mariano Legaz, sourcing professionals are leveraging eSourcing technology in new and creative ways to evaluate the marketplace and to drive down spend on products and services we are procuring for the operation, optimization, and maintenance of our network.
In our Network and IT Sourcing group, which is part of Procurement and led by Vice President Cyril Pourrat, Sourcing Managers are increasingly utilizing electronic auctions (eAuctions) as part of large sourcing events where a vast number of suppliers compete to sell Sprint numerous pieces of network equipment and/or a variety of network services deployed across the country. We conduct eAuctions and other more traditional sourcing events via a strategic sourcing tool, which is also used to manage our supplier records, track procurement projects, and eventually to author and retain our procurement contracts.
What Is an eAuction?
An eAuction is an online marketplace where suppliers and buyers negotiate pricing terms for products or services. There are 2 main types of eAuctions: reverse auctions and forward auctions.
1. In a reverse auction, a single buyer conducts an event where multiple sellers (suppliers, or bidders) bid against each other to secure the buyer’s business, driving the price down.
2. In a forward auction, on the other hand, a single seller offers items for purchase during the event, and buyers compete to secure the items by bidding the price upwards.
One team at Sprint uses forward auctions frequently to bulk sell used handsets, tablets, and IOT devices, that customers trade in or return. Within Procurement, however, we’re almost exclusively running reverse auctions since we are usually trying to drive our costs down. We have successfully conducted eAuctions for a variety of temporary and permanent equipment, big and small, to support the Sprint network.
While eAuctions are just one of many tools in our sourcing toolbox and are not appropriate in all situations, they are powerful when applicable because they allow market forces to play out in real time and automate the negotiation process. We’re getting market best pricing while saving a lot of time and effort not having to negotiate one-on-one with suppliers. Moreover, eAuctions put suppliers in direct competition, helping our Sourcing Managers to maintain relationships with the supplier community.
To conduct a successful eAuction of network or IT products or services, Sprint Sourcing Managers create circumstances that make the product and/or service category ripe for bidding. This starts with ensuring that there is a competitive landscape. By that, we mean there must be 2 or more qualified bidders open to continued pricing negotiations.
A qualified bidder is one that can provide the products or perform the services being bid in strict accordance with Sprint’s project specifications and requirements, and has otherwise been vetted against Sprint’s supplier standards, such that neither the sourcing manager nor the business owners have reservations about awarding that supplier the business if they do well during the eAuction. After all, the results of an eAuction don’t matter if we would never do business with the winning bidders.
To qualify bidders, Sourcing Managers will often conduct Requests for Information (RFI) or Requests for Proposal (RFPs) ahead of a planned eAuction to first obtain information about their capabilities. From there, Sourcing Managers and the business owners may agree to eliminate, or down select, bidders that aren’t a good fit.
Then, Sourcing Managers conduct a Request for Quote (RFQ) to solicit pricing in a format specified by Sprint that allows for easy like-for-like comparison. Each bidder’s RFQ bids become their starting prices for those same items when the reverse auction commences. We get better results when bidders set their own starting bids versus providing prepopulated baseline prices that might be misinterpreted as the price the company is willing to pay.
We also get better eAuction results when there are more qualified bidders participating, simply it drives more bidding activity. In other words, the more (bidders) the merrier (the eAuction). We communicate an intent to award to the lowest cost bidder(s) or at least to convey that there will be no opportunity for price modifications following the eAuction, so bidders provide their best pricing when market forces are working in real time. Our strategic sourcing tool allows us to set automatic extensions to allow for the lowest-cost bidders to continue their offers.
When product or service offerings vary from bidder to bidder, Sourcing Managers can account for non-pricing factors by taking advantage of a weighting values feature of our strategic sourcing tool. This allows the Sourcing Manager to show the bidders their relative ranks in real time in a way that accounts for non-pricing factors side-by-side with pricing. Sourcing Managers can also take in special cost considerations by applying supplier-specific price multipliers (percentage adjustment) or a bid adder (dollar adjustment) to submitted bids.
In eAuctions with many bidders, Sourcing Managers can choose not only what they show to the bidders (best current bid or relative rank) but who sees price or rank feedback, and doing so helps drive desirable behavior. For example, a Sourcing Manager may configure the event such that only the top half of the bidder pool gets system feedback (the best current bid or their own relative rank), which encourages bidders in the lower half to stay in the game longer and bid more aggressively.
Our strategic sourcing tool affords us the ability to configure eAuctions in a variety of creative ways to optimize outcomes on a case-by-case basis. As I write this, we are overseeing a series of reverse auctions for a large project that covers 40+ line items with services being performed in nearly 20 different US markets. We expect nearly 200 suppliers to submit tens of thousands of bids over the next 2 weeks, resulting in millions of dollars in cost savings to Sprint.
A negotiation of this scale would be very difficult to do outside of our strategic sourcing tool. The eSourcing capabilities of the tool not only ease the process but ensure we’re getting the most competitive pricing on a market-by-market basis with suppliers who have been vetted as capable to perform the work.