Using an e-auction to successfully tender a complex service

Occumen drives a more comprehensive approach to the supply and fitting of tyres for the 400,000 vehicles of a UK fleet company. 

The challenge

The desire to be able to manage risk more effectively and to get better value from its supply base prompted the new Finance Director of the UK finance subsidiary of a car manufacturer to initiate a review of its sourcing arrangements. The initial focus concerned the tyre manufacturers as well as those companies providing tyre supply and fitting services to its 400,000 vehicle fleet.

Long-standing relationships with its existing suppliers and limited systems in place to track supplier performance led to an element of complacency. The organisation’s stakeholders were therefore keen to better understand the current situation.

The solution

Occumen, a procurement focussed management consultancy, was asked to review the organisation’s existing arrangements, which indicated that better clarification of the business requirements and a comprehensive review of the market were needed. We drew up revised business specifications that included updated contract terms, performance metrics, commercial and working practices and reporting. We also undertook a review of the market to identify the most suitable tyre manufacturers and, based on service capability and geographic location, those companies providing tyre supply and fitting services.

Two separate, but linked, tenders were launched - each for a 2 year contract - one to the tyre manufacturers and the other to the tyre supply and fitting service providers. Suppliers were invited to tender, but only after they had signed terms and conditions which defined new expectations around pricing and performance. To be completely fair and even-handed, we briefed all the suppliers together.

After receiving the initial tender responses outlining their unit price proposals, the shortlisted suppliers were invited to participate in a number of e-auctions we were hosting. The first e-auction was run to secure the unit cost of the tyres from the tyre manufacturers, and then another to achieve the best volume discount for the total tyre supply. A similar set of e-auctions were held with the tyre fitting providers to lock down the unit prices for the fitting of tyres and also any further volume discounts based on the overall value of the business they secured. The e-auction lotting strategies were designed to allow the most competitive price combinations for the respective elements of the purchase, supply and fitting of tyres to be readily identified.

Once again Occumen has shown themselves to be an excellent partner in assisting us in our tender approach and the handling of a complex procurement programme

Head of Fleet Operations
UK Finance Subsidiary of a Car Manufacturer

The benefits

The choice of suppliers was based on evaluating both the commercial results of the two e-auctions and the levels of service offered, geographical coverage and quality standards. This resulted in three new tyre manufacturers and one new tyre supply and fit service provider being selected. Even though cost reduction was not a main driver in initiating the review, the total savings equated to a 25% decrease in costs after rebates had been taken into account.

The most appropriate solution had been arrived at based on revised requirements, specifically aligned to the organisation’s needs, managed openly and precisely. This comprehensive approach to supplier sourcing introduced more formal procurement methodologies to the organisation and delivered fixed pricing, supplier relationships based on revised commercial contracts, updated specification standards and new monitoring and reporting methods to measure supplier performance.

We configured a comprehensive sourcing solution, which really helped to align the senior team, prepare the marketplace and deliver a consistent message to all involved

Rob Alexander
Partner, Occumen
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