The lines of credit see-saw discussed in earlier posts continues to make press, with The Times today reporting that “Big companies are delaying payment to smaller suppliers by more than 100 days in the biggest squeeze on small firms' cashflows since the early 1990s”. 

The Federation of Small Businesses (FSB) says that the situation has worsened dramatically in the past few weeks, with some members facing a wait of well over three months to be paid for goods or services provided.

A major new concern, however, is that big companies are starting to formalise longer payment periods, rather than merely settling their bills later in an ad hoc way Stephen Alambritis, the FSB's head of government affairs, said: “Many seem to be using the credit squeeze as an excuse to put in place permanent arrangements for long payment periods.

It’s a dangerous road. In our experience buyers that use collaborative procurement tools to strengthen rather than damage relationships are the ones who prosper best in both good times and bad.

In a recent piece of frenzied hype, online energy specialist supplierswitch.com has stoked business fears with a prediction that the average rate of increase in energy prices for corporate users could be between 60% and 100% year-on-year.

Whilst this might be a little alarmist, there’s no denying the impact of energy price rises on even the largest operators, with Tesco recently revealing that the financial gains provided by its 8 year programme of green energy initiatives have been wiped out by soaring gas and electricity prices.

And considering that energy and telecommunications costs can make up as much as 25 percent of an organisation's overall operating budget, it’s well worth paying close attention to utility costs. The good news – a commodity in somewhat short supply these days – is that energy remains one of the most responsive spend categories to effective sourcing.

Much has been written on the subject of procurement outsourcing in recent years, and the tide had appeared to be shifting inexorably in this direction, but in the last 12 months we have seen a considerable movement the other way – with many organisations that had experimented with outsourcing choosing to insource again.

A recent study published by the Everest Research Institute bears up this trend, highlighting the fact that fewer procurement outsourcing deals were struck in 2007. In the group’s Procurement Outsourcing Annual Report Katrina Menzigian, vice president, wrote “Buyers are able to ‘experiment’ with procurement outsourcing as they potentially migrate towards a full Source-to-Pay (S2P) strategy.”

“This phase-in approach is allowing the opportunity for testing of synergies, scaling up operations, developing industry-specific capability which, in turn, delivers better results and savings.”

In my last post I described a number of the most common auction types. Below are a few less common ones, just to complete the round up! 

Brazilian Auction

In a Brazilian auction, the buyer establishes the price they are willing to pay for the lot and the sellers bid on how many units they are willing to provide at that price. The auction continues until a seller makes a bid that no other seller is willing to top.  

Vickrey Auction (Also known as a reverse second price sealed bid)

In a Vickrey reverse auction, a variant of a sealed bid auction, suppliers submit bids without receiving any feedback regarding their bid rankings. The award is to the successful bidder at the second lowest bid. For example, if bidder A bids £10 and bidder B bids £12, then bidder A wins the auction but receives the award at B’s bid of £12.  

Dutch Auction

A method of selling in which the price is reduced until a buyer is found. The seller / auctioneer solicits bids for a Lot consisting of multiple units of the same item. Each buyer can bid on part of the Lot at a fixed price (per unit) or the whole Lot. When the auction is over, the buyer pays the highest accepted bid price.

For example, if a buyer wanted to buy 10 units, and seller A offered to provide 5 units @ £75 each, seller B offered to provide 3 units @ £80 each, seller C offered to provide 6 units @ £90 each, and seller D offered to provide all 10 units @ £95 each, then the buyer would buy 5 units from seller A, 3 units from seller B, and 2 units from seller C at a cost of £90 each for a total of £795.  

Yankee Auction

Similar to the Dutch auction, the buyer solicits bids for a Lot consisting of multiple units of the same item. Each seller can bid on part of the Lot at a fixed price (per unit). When the auction is over the buyer takes the lowest priced bids, in ascending order, until a full Lot is reached.  

For example, if a buyer wanted to buy 10 units, and buyer A again offered to provide 5 units @ £75, buyer B offered to provide 3 units @ £80, buyer C offered to provide 6 units @ £90, and buyer D offered to provide all 10 units @ £95, then the buyer would buy 5 units from buyer A (at £375), 3 units from buyer B (at £240), and 2 units from buyer C (at £180) for a total cost of £795. 

Chinese auction

This type of auction (actually is better described as a raffle!) is typically featured at charity or other fundraising event. 

In a Chinese auction, bidders do not declare values to one another or to an auctioneer…so it is questionable whether it is a auction at all. Instead, participants buy tickets at a pre determined price for each basket / lot they wish to win. The tickets / coupons purchased are essentially chances to win items. Bidders may buy as many tickets as they like, and bid them on any qualifying item(s) they want by placing them in a basket or other container in front of the item or service they are trying to win. At the conclusion of biddings, the winning ticket is drawn and the item is given to the owner of that ticket. The value of the tickets purchased is retained by the event owner.   

Auctions have been a popular mechanism for the disposal or acquisition of goods and services for centuries, not just because they are highly efficient in maximising commercial returns (if managed correctly!), but also because they are often entertaining and compelling events in their own right.  

And whilst the romance of the crowded auction room filled with competitive tension and presided over by a gavel-wielding auctioneer may have taken a bit of a hit in the online age, the Internet has nonetheless heralded a bold new age of democracy for the auction. 

In breaking down geographical barriers to trade the Internet has enabled ever greater numbers of bidders and sellers to come together. Online events have skyrocketed in both the B2B and B2C arenas, allowing companies such as ebay to become billion dollar businesses in a few short years. 

Their proliferation has also spawned, or at least made interested observers aware of, a host of variants on the standard forward or reverse auction theme – and here are just a few examples of the more commonly used formats… 

English Auction

English auctions are probably the most common type of auction format. Users make increasing bids (Forward - price increasing) up to the maximum they are willing to pay for an item or service. The event only closes when no additional bids are received in the allotted timeframe or when the auction fails to attract any more bids. The item / service is then sold to the highest bidder at the highest bid price made during the event. 

Conversely, English reverse (decreasing in value bids) take the same format as above but seek out decrement bids… often based on rules until no new lower bids are achieved in the allotted timeframe.  

English auctions also allow the seller to specify a reserve price below which the item will not be sold.  

Sealed Bid Auction 

In a sealed bid reverse auction sellers are given a deadline by which they need to submit one best and final bid. Bidding parties are not privy to the identity of any other bidding parties or the value of bids they may make, unlike in a standard reverse auction where each bidder knows exactly how their bid compares to other bids made.  

Traditional reverse auctions are typically over in a shorter timeframe and provide an opportunity for the bidding party to view the status of their own and other bids in much the same way as an auction room event. 

Reserve Price Reverse Auction

In a reserve price reverse auction the buyer establishes a “reserve price”, or “qualification price”, which is the minimum amount the buyer will need to pay for the goods or service. If the bidding does not reach the reserve the buyer is not obliged to sell.   

Fixed Price Auction

The seller establishes a buyout price at which the buyer can simply buy the item being auctioned (at any point during the scheduled auction event). This will end the auction. Variations support a minimum bid that will be accepted and bidders will be prevented from going below this bid. The first bidder(s) to reach this price / value wins.   

Japanese Auction

A Japanese reverse auction takes the form of a series of bid rounds. After each bid all remaining participants must signal their willingness to remain in the auction at the current or new price / value. The auction is over when only one participant remains, or when only a pre-set number of participants remain relative to the lines / lots / baskets up for acquisition or disposal.

So you’ve already used electronic auctions to drive down the cost of your stationery contract, but now it's time to re-eAuction this commodity. There’s seemingly not much opportunity to realise the same kind of savings again, but how do you maintain best price? ...or extract even greater value?

This approach has been used with other commodities and services and not only maintained best market price but added a dimension to ensure all round best value.