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Function documentationAuction Weights Locate this document in the navigation structure

 

On the Weights page, you can add auction weights by supplier and by line item.

Factored-cost Bidding

You use the Weights page to set up factored-cost bidding for an auction. Typical auction analysis does not provide a full picture of the costs and preferences associated with the auction. Factored-cost bidding allows you to take into account such factors as transportation costs, switching costs, import tax, and so on.

In an auction with factored-cost bidding, you see both the suppliers' actual bids and the factored-cost bid totals. If the auction type enables the suppliers to see each other's bids, each supplier sees the other bids adjusted by their own weighting factors. This provides an accurate representation of the leading bid to beat.

In an automatically awarded auction, the award will go to the leading factored-cost bid. If the auction is used to create an RFx, the actual bid price (not the factored-cost price) is used in the RFx. That is, the factored-cost price is not exchanged between the auction and the RFx.

The Weights page only appears if factored-cost bidding is enabled in the auction type. For details, see Auction Types.

Factored-Cost Bidding Formulas

The following formulas are applied on the buy-side to create weights for a supplier and change auction bids:

Factored-Cost Unit Price = (100% + m%) (Bid + a) + b

Factored-Cost Total Cost = Weight Unit Price * Bid Quantity + s

  • In the (m) Multiplier column, enter a value that should be applied as a percentage to a particular supplier.

  • In the (a) Additive Value 1 column, enter an additive value to which the multiplier applies.

  • In the (b) Additive Value 2 column, enter an additive value to which the multiplier does not apply.

  • In the (s) Setup Cost column, enter any setup cost. Setup costs are applied to the total cost of the bid, not to the unit price.

For complete details and examples, see Field Help for Auction Weights.

The following formula is applied on the sell-side to change the auction bids that each supplier sees:

Adjusted Bid Price/Unit = [ (Factored-cost Bid - b) / (1 + m) ] - a

This formula accurately shows the leading bid that a supplier has to beat, adjusted by the supplier's own weights.

Detailed Factored-cost Bidding Information

In a factored-cost bidding auction, suppliers may see leading bid values from other suppliers' bids. It is not immediately clear how these numbers are calculated.

As an example, consider a factored-cost bidding auction with two suppliers, Supplier A and Supplier B. The purchaser has factored-cost Supplier A's bids by 5% and Supplier B's bids by 10%. If Supplier A places a bid of $900,000, the purchaser will see it as $945,000. If Supplier B also places a bid of $900,000, the purchaser will see $990,000. At this point, Supplier A has the leading bid, since that is based on the values that the purchaser sees.

When Supplier B looks at the bidding page, he or she will see Supplier A's leading bid as $859,090.9090.

To understand where this leading bid value came from, it helps to imagine that each participant in this auction is using a different currency rather than factored-cost bidding. Call these currencies $B for the purchaser, and $SA and $SB for the two suppliers. Then consider the weighting factors as defining the exchange rate between these currencies:

Exchange rate for $SA to $B: 1$SA = 1.05$B

and

Exchange rate for $SB to $B: 1$SB = 1.10$B

So, when Supplier A bids 900,000$SA, the purchaser sees this in his or her currency as 945,000$B:

900,000$SA * 1.05$B / 1$SA = 945,000$B

Similarly, when Supplier B bids 900,000$SB, the purchaser sees this in his or her currency as 990,000$B:

900,000$SB * 1.10$B / 1$VB = 990,000$B

When Supplier B sees Supplier A's bid, he or she wants to see it converted to his or her own currency, $SB. Supplier A's bid is 900,000$SA or 945,000$B. Converting this to $SB yields 859,090.9090$SB:

945,000$B * 1$SB / 1.10$B = 859,090.9090$SB

The conversion is required so that Supplier B will see amounts that are in the same “currency” as his or her own values, thus allowing him or her to compare them to each other directly.

Activities

Adding Factored-cost Bidding Factors to an Auction

You use the Weights page to set up factored-cost bidding for an auction.

You can enter weight valued by supplier and then apply them to line items. You can also enter or override individual line item values.

To add auction factored-cost bidding factors:

  1. Make sure that the auction is in Edit mode.

  2. On the Weights page, enter weight values by supplier if you want to assign the same values to all or most line items for this supplier. Enter weight values as described above.

  3. Apply the supplier weights to line items by selecting the suppliers whose weights to apply and clicking Apply Weights to Line Items.

  4. Optionally enter or override weights for individual line items using the formulas described above.

  5. Save your entries.