Last week, I used the disparities in costs of The 12 Days of Christmas to encourage Supply Excellence readers to apply e-sourcing techniques to all spend categories. The use of online sourcing methods — whether e-RFx, reverse auction, or sealed bid — has been proven to provide the competittion and market transparency required to yield additional supply cost concessions above and beyond traditional methods.

Today, I’d like to share a simple litmus test that top-performing supply management organizations (e.g., Sun Microsystems, ITT Industries, Compass, and others) use to assess whether a good or service should be reverse auctioned. I have compiled a composite list of four questions leading organizations use to determine which categories are ripe for reverse auction:

1. Can you define clear specification for the category?
2. Is there a competitive supplier pool?
3. Is the spending or unit volume significant enough to be of interest to suppliers?
4. Are you prepared to change suppliers based upon the auction results?

If you can answer “Yes” to these questions, then reverse auction is a viable negotiation method. If not, consider adopting other e-sourcing techniques, such as e-RFx or sealed bid.