In order to find the best vendors to handle the 1,300 meetings it holds each year, Schering-Plough Corp. now uses online reverse auctions. These are fixed-duration online bidding events in which multiple suppliers compete for a buyer’s business. “Reverse auctions have proven to drive pricing to true market values and have reduced negotiation time,” says Donna Solazzo, Schering-Plough’s manager of global strategic sourcing.
The Kenilworth, N.J.–based pharmaceutical company held its first reverse auction for meeting services in 2000 and conducted two last year, one to find preferred suppliers to provide consolidated logistics services for its 2004 meetings and the other for a multi-year contract to consolidate exhibit management for 100-plus trade shows and conventions.
Solazzo explains that the auction for preferred meeting suppliers sought a manageable number of vendors and focused on the supplier pricing for management fees, on-site staff salaries, and per diems. All other meeting costs, Solazzo says, are passed through as actuals. “We used the e-auction tool for logistics services because we felt it was an area that could be specified.” In the end, Schering-Plough awarded the business to five suppliers, with two or three of the five firms assigned to each of the approximately 10 types of meetings addressed in the auction, including sales meetings, product launches, educational/speaker training, advisory boards, investigator meetings, incentive/award programs, sales training, continuing medical education, and so on. The other 2003 auction sought bids for design, building, storing, and moving of Schering-Plough’s exhibit booths. The result was three-year contracts for two suppliers.
In addition to meeting services, Schering-Plough has conducted reverse auctions for corporate travel hotel rates as well as a range of other goods and services, from analytical services to print and premium items. According to Solazzo, it is not unusual to reduce spending by 20 percent to 50 percent by having an online auction. Though, she notes, the first auction is likely to lower prices by a greater percentage than later auctions since suppliers presumably have offered their best discounts the first time around.
But price isn’t the only factor that goes into the supplier selection process, stresses Solazzo. “The winner is not necessarily the lowest priced in the auction. The auction does help drive the prices downward. The details of the auction bid need to be heavily analyzed along with other qualitative factors.”
Solazzo acknowledges vendor challenges with the reverse-auction process. Some aren’t pleased with having to learn the e-procedures with no promise of future business, and smaller vendors may not have the technological wherewithal to prepare for the events. She also notes that you lose some face-to-face interaction, but that the advantages of savings and efficiencies outweigh the disadvantages.
At Schering-Plough, as at a growing number of pharma companies, purchasing pros are increasingly involved in meeting and event contracting. In Schering-Plough's case, the sourcing professionals and the meeting professionals have joint accountability for the meeting-specific auctions. “Meeting professionals must clearly define required services, volumes, and expected service levels,” Solazzo says. “The purchasing or sourcing professionals review and clarify specs and build the reverse auction projects using the technology available.” The meeting professionals, she says are the primary, but not the only, decision makers. “Together, results are compared, assumptions are clarified, and vendor capabilities reviewed. The more closely both groups interact, and the more involvement that the meeting professionals have with conducting the reverse auctions, the more successful the auctions are.”