Many negotiation tools are used in the procurement world. Next to traditional forms of negotiation, like meetings or telephone conversations, procurement departments have also started to utilize electronic auctions more and more frequently. Succeeding in negotiations depends first and foremost on how well we utilize the range of tools we have available.

Today’s article explains in which situations is it preferable to utilize electronic auctions, and in which it would be better to make use of traditional forms of negotiation, where the negotiators’ soft skills and the merchant-supplier relations have a significant impact on the outcome.

An e-auction is a tool assisting in procurement, involving an on-line presentation of trade offers. Usually, its duration does not exceed 45 minutes. These auctions are an alternative or a supplement to traditional trade negotiations.

They utilize the phenomenon of open competition and the transparency of the selection process, and that is why they are becoming more and more popular. Companies are eager to utilize them not only to save the time associated with the negotiations, but also use them to find the best offer on the market.

The use of Internet and the suppliers’ opportunity to compete in real time have resulted in many companies utilizing electronic auctions as an alternative or supplement to traditional negotiations.

Electronic auctions should be used in competitive markets, where the risk associated with changing the supplier is small, and the process of their replacement is relatively easy, with a small risk of affecting the core business activity of the company.

In the area often defined in specialized literature as “standard products”, electronic auctions should be used as an element of the procurement automatization process.

From a merchant’s point of view, the key area of use for this e-procurement tool are the so-called “leverage” products. It is a procurement category wherein companies allocate the most funds, and the risk of supplier change is small.

We can achieve significant savings for the company in this area, utilizing an electronic auction based on open competition.

When we are dealing with a monopolistic or oligopolistic market, where we are unable to use the competitive leverage, the recommended course of action is to commence relational negotiations with suppliers, in which both parties are perceived as business partners seeking mutual benefits coming from collaboration.

Direct meetings between teams composed of specialists from both parties with the goal of establishing solutions aimed at obtaining the synergy effect are a common practice in many companies.

To sum up, traditional negotiations ar a longer form of supplier selection, including a series of meetings and reaching a consensus.

In e-procurement areas, where merchants can allow themselves to make use of an electronic auction, it is possible to work out measurable savings for the company while automating the process at the same time.

Electronic auctions constitute a very attractive tool in company procurement policy and undoubtedly bring measurable benefits, however one should remember that they should not lead to a complete elimination of traditional negotiation tools.

A proper use for them would in turn be to treat them as an efficient alternative, or a valuable supplement to the negotiation process in properly selected procurement scenarios.