As a group, European companies have shied away from online reverse auctions. In my benchmarks on this issue, European firms consistently lagged the U.S. in adoption and plans for reverse auction use, preferring instead to employ online tendering, e-RFx, and more collaborative negotiation methods.

In recent years, several high-profile successes from GlaxoSmithKline, ITT Industries (See: London: Secrets, True Confessions, and Auction Lessons), Compass (See: Can You Predict Auction Success?) and others has begun to lower Europeans’ resistance to reverse auctioning. In addition to yielding compelling cost benefits, early adopters argue that the information transparency and structured nature (and auditability) of reverse auctions actually creates a more fair trading environment than traditional, off-line negotiation methods. Says Jessica Dunlop, head of e-SCM initiatives at ITT UK: “We’ve found that vendors view reverse auctions as a much more objective process than the old ways of negotiations. The [tool] actually improves vendor relationships and increases the integrity of our process.”

Despite such evidence, emerging interest in reverse auctions could stall thanks to new restrictions the French government has imposed on the use of reverse auctions. Sourcing managers should be aware of the following rules under Article L.442-10 of the Commercial Code:

• Companies involving French suppliers in reverse auctions will be governed by French law, regardless of the terms and conditions and jurisdictions agreed to between individual buyers and suppliers.
• Buying organizations must openly communicate purchasing conditions and methods, selection criteria, and auction rules to all interested and qualified suppliers.
• Buying organizations must reveal the identity of the winning party to all participants. If the winning bidder withdraws, the runner up will automatically be awarded the business.
• The winning bidder can reject the contract if additional limitations – such as new exclusions, delivery terms, quality, etc. – are introduced after the event.
• The law also extended the notification period for terminating a supplier relationship resulting from competition of reverse auctions. And increased penalties for violation of the rule.

The most stringent component of the new regulations is that French officials have prohibited the use of reverse auctions for certain categories, particularly agriculture products.

On the surface, the limited scope of the prohibitions seems innocuous. (I mean, beyond the food service, hospitality, and, possibly, Emeril Lagasse, how many sectors would even consider auctioning food items?) However, there is a risk that the French government is setting a precedent that could extend protectionist measures to other categories (particularly those backed by powerful political lobbyists) and other regions across Europe.

No, Poulet Little, the sky is not falling on auctions — yet. But sourcing managers should stay abreast of changing regulations that could impact the use of certain negotiation and supplier management methods (and tools) in specific countries.

As ardent defenders of free trade, you can rest assured that SupplyExcellence.com will be monitoring such restrictive anti-capitalist rulings around the globe.

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