Reverse auctions have been around for a long time and have proven their value in many areas of sourcing, from office supplies to raw goods for manufacturing. In recent years, I have seen some telecom services become more commoditized, allowing companies to procure telecom services with reverse auctions, significantly reducing telecom expenses and procurement time.
Reverse auctions can be an effective and powerful tool in the right situation; but they are not always the best tool to deliver the results you want. Instead, think of reverse auctions as just one of the procurement tools in your toolbox. Here are four additional procurement tool options:
- Request for Information (RFI): As the name suggests, this procurement tool is used to gather information. RFIs are best suited for evolving technologies where you need to get educated on the industry or a certain technology and are not planning to implement for at least 18-24 months. Bidders are typically offered wider liberties with their responses, and an RFP will usually be required as a follow-up prior to selecting a provider or solution. The information provided in this stage will be useful in later supplier negotiations.
- Request for Proposal (RFP): This is the most common procurement tool, yet it is one of the most time consuming and complex procurement processes. RFPs are best for purchasing mainstream products where you want bidders to provide innovative or creative approaches to problems as part of their responses. If managed properly, you can acquire some free upfront engineering while securing the best price under the most favorable business terms by using RFPs.
- Request for Quote (RFQ): Typically used for smaller projects and/or when you are forced to either operate on a shorter timeline, know exactly what you want, or understand (and can accept) the differences between the bidders you invite to participate. An RFQ lends itself to products or services that are standardized or delivered with little variance.
- Reverse Auctions: Reverse auctions require extensive work up front in order to get significant savings in the end. Now that reverse auctions have found a place in telecom procurement, keep in mind that their use should be limited to:
- True commoditized or non-mission critical services, such as basic outbound long distance or conferencing when price is the most important deciding factor, or
- As a final round where you have already evaluated the service offerings from preselected bidders and have determined that any of the bidders can meet your technical and business requirements.
Each of these tools can be leveraged individually or in combination with one another to achieve a successful sourcing solution to drive real savings opportunities. Whether you choose to use reverse auctions, or another procurement tool, choosing the correct one for your project will save you time, money, and effort.
Ecova’s Telecom Lifecycle Management team is available to answer questions about procurement and best practices as it relates to your telecom network.