The Pharmacy of the University Medical Center Groningen (UMCG) annually buys drugs for € 10,6 million. Together with Negometrix, the UMCG organized an electronic auction to contract their drug supplies for 3 years. The project resulted in savings of € 640.000 while the hospital pharmacy would have been happy if their current contract prices would have been frozen.
Reverse auction.
In a Negometrix reverse auction, each suppliers has a few minutes time to bid a price for which he is willing to fulfill the contract. After the bid is placed, suppliers see their ‘Best Buy’ rank based on price and pre-determined quality for each of the suppliers. Next, a new bidding round starts until all suppliers stop bidding. This auction was the last element of a unique Electronic European Public Tender executed by the Procurement Services of the UMCG
Low price leads to low quality?
“Does such a tender methodology leads to lower quality?” was one of the critical initial questions? Logemann, Senior Buyer at the UMCG: “We did not really select any specific medications in this procedure, but only the logistic services to supply the UMCG with selected medication. Yet, on of the bid parameters was a discount offered on Generic drugs. Logemann therefore does not see any quality lowering risk; “On the contrary, such a public tender is an occasion to carefully define, describe and demand certain quality levels.
Transparant
The tender was split in two delivery components – distribution and distributed product range - , wholesalers needed to bid on both elements. First the qualitative element by electronically answering specific questions and second financially quantitative element by quoting all price components. Splitting the tender created additional transparency and accuracy.
Electronic specifications
To be invited to the auction, all (potential) suppliers needed to fulfill a number of minimum criteria published on the interactive Negometrix platform. A unique username and secret password was distributed to all suppliers allowing them interactive access through Internet. Tender data entered on the platform by the suppliers to complete their offers are legally binding. Not fulfilling all “nice-to-have” criteria does not lead to exclusion of a supplier but does lead to a lowed quality index for this supplier. This qualitative index which was weighted for 40% and orice the remaining 60%. Example: Suppose company X scores 6% better than company Y. This would lead to that company X may be 4% more expensive to be of the same value to the UMCG (called utility) than company Y.
Auction rounds
Each auction round lasted 5 minutes. In this time, wholesalers that were not ranked Best Buy could respond with a better bid. If not, the auction would be over. The software provides bidding guidance by continuously calculating and showing the price needed te be ‘Best Buy’, which most often is a different price for all bidders.
Look at the numbers
The project resulted in savings totaling € 640.000 euro compared to the prices for the previous period. In addition, it saved many piles of paper while comparing the offers was quicker and more insightful according to Logemann.