In a previous blog post, I acknowledged a significant milestone – namely the 10^th anniversary of our first auction. As I promised there, let me outline why auctions work so well:

- Auctions make apples-to-apples comparisons of suppliers’ bids extremely simple because each supplier bids on the exact same product and contract terms. Responses to paper-based/email RFPs can vary all over the map and are difficult to compare.

- Auctions increase the pool of suppliers bidding on your requirements. The more competition, the lower the price. There is no extra work to have 12 suppliers in an auction vs,, say, 3, BUT with a paper or email RFP process it is MUCH more work for your procurement staff or consultant to reach out to each incremental supplier. Truth is, on average, consultants query 2 or 3 leading suppliers and then sell you on a good-enough price. Go ahead, next time ask to see how many offers you got for your requirements.

- Our platform makes it easy for suppliers to participate. In our supplier survey one supplier said that our auction is “brutally efficient at squeezing margins to the bare minimum,” yet they keep coming back to us. Why you might ask? Well, the reason is that we significantly lower their transaction costs. Lowering their back-office costs enables them to sharpen their pencil.

- The design of our actions (Anglo-Dutch) is far superior to other designs. We don’t do proxy bidding or overtime bidding. We don’t let suppliers see who else is bidding. Our hard stop feature causes the last bids to be blind, essentially requiring suppliers to “go all-in” with their final price. The design is so good that 20% of the time the winning supplier outbids itself in the last 15 seconds, when they would have won with their second best price. Who benefits? You do.

- We run multiple auctions for your requirements. With separate auctions for different contract lengths, products, green component mixes, load factor and location combinations, our procurement process yields a pricing matrix that enables you to choose the best offer for your goals and risk profile.

- Auctions are run serially in real time. Suppliers learn what won the 1 year auction, so they sharpen their price for the 2 year RFP. Because they don’t know which RFP will be awarded, they are on their toes for each event. Plus they’re competitive; if they lose the first auction, they come back with a vengeance on the next one.

- Contracts are signed within an hour of the close of the final auction. Because the underlying commodity is very volatile, shrinking the time between price declaration and contracting enables suppliers to minimize their exposure to the markets. The less exposure, the lower the risk premium they apply to their price, the lower your cost.

So as you can see, there are a lot of reasons why online auctions work so well. If you are booking your travel, doing your banking, shopping for a car, buying office supplies and screening job candidates online, why are you settling for less when it comes to your energy procurement?

In subsequent blog posts, I’ll explore these points further through case studies.