When I saw our recent GSA press releases, highlighting the successful procurement of more than one billion kWh of power and the wonderful results generated by textbook supplier bidding behavior, I immediately thought of a collateral piece produced by a prominent competitor of ours about how auctions don’t work. It was entitled “A Tool with No Mechanic”.

I realize I may be chief dispenser of the auction Kool-Aid, but when I got the collateral I remember thinking, “Really? They really don’t think auctions work? How can anyone think auctions don’t work?”

Maybe it was simply enlightened self-interest, as when Ken Olson (founder of Digital Equipment, a mainframe and mini-computer manufacturer) famously said “There is no reason anyone would want a computer in their home” in his argument against the PC in 1977.

But, then again, maybe our competitor doesn’t really believe.

Their piece made some good points about the need for a comprehensive energy strategy. Couldn’t agree more. This line of thinking comes straight from our Seven Levers of Energy Management playbook. Of course you need energy experts. Understanding the customer’s needs, goals and objectives, tuning into the supply dynamics, and having a pulse on the energy markets are all essential. We get that. In fact, our market directors AVERAGE 18 years’ experience.

But once you’ve got these pieces in place, can they really be advocating that they can do as well as or better than an auction by issuing a manual RFP and negotiating with a supplier by phone?

Turns out they are.

They ask, “How does it benefit a company to buy from the auction winner when the market is at its peak?” No duh. But the real question is how does anyone know where the market is going? If they could time the market, why are they even in energy management? If I could predict energy prices, it seems a whole lot easier to go to Wall Street and make a killing trading than being an energy management company.

Our competitor goes on to claim an auction yields weak competition, stating “many top energy suppliers don’t participate in reverse auctions.”

That’s patently false. We have over 90% of all energy suppliers, and 100% of those that participate in more than one market. One supplier has said, “the auction is brutally efficient at driving margin to the bare minimum,” but keeps coming back because the auction gives them a fair and unbiased result, and is more cost effective to participate in than a paper process because of our extremely high close rates and efficient, electronic process.

Now on to their last question: How do you know you are getting a good price? To which I answer: How can you not be getting a good price?

What would you trust more - an electronic method where you can see the suppliers aggressively bidding in real time or a price someone derived in conversations with suppliers? Seems like a lot more work to send 10-15 RFPs out and call all the suppliers to get their price vs. putting those same suppliers in one auction and having them compete in real time. There is no marginal work to add a supplier in an auction vs. the pain of sending RFPs to, and evaluating the response of, the nth supplier’s price. And you know what happens in reality, the manual guys tend to get pricing from 2 or 3 favored suppliers vs. doing the hard work of soliciting pricing from more vendors. They get a “good enough” price vs the lowest available price. Big difference.

I don’t know about you, but if suppliers bid more than 150 times in the last 30 seconds of a procurement, as they did in the two GSA events, I’m thinking they’re competing to win, leaving little margin on the table and delivering the customer their very best price.

But, hey, maybe our competitors don’t have PCs at home, either.