The 12 Days of X-emplification: Day 1 – RFx & e-Auction

So, I bet you’re all wondering – what’s to x-emplify? I’m sure you’re saying that it’s just RFx and e-Auction … it’s been around for 10 years … and it’s pretty self explanatory. My answer to that is that you’d think it should be, but given the wide range of capabilities that exist in the various products out there, as well as the even broader range of sales pitches, I’d argue that RFx and e-Auction are still not well understood.

To help you understand what RFx and e-Auction is, isn’t, and should be – in addition to my various posts on RFx and e-Auctions, my guest contributions to the topics over on the e-Sourcing Forum (RFx and e-Auctions), and my contributions to the wiki-papers (RFx and e-Auctions), I’m going to point out some questions for each technology that you should be asking, as well as the answers you should be hearing, to help you cut through the sizzle and get to the steak.


0. Do I really need e-RFx at all?
I’ll probably take a lot of heat from everyone in the eRFX business for this, friend and foe alike, but if all you’re looking for is some basic information, or an occasional quote on office supplies, sometimes all you needis a free-form questionnaire or spreadsheet that’s mailed directly to recipients. It’s always interesting to see how suppliers respond to free-form questions — do they use marketing B.S., or do they have something useful and informative to say? Do they answer your questions honestly, or try to side-step them like your average politician or stereotypical used car salesman?

If you don’t really know much about the space, supplier, or type of product that you’re investigating, how can you ask anything but open-ended questions, anyway?

1. How much flexibility do I have in form definition?
Let’s face it – large template libraries are great ONLY if they offer the templates you need for the categories and commodities you need to source. You need to be able to create your own forms, from scratch, and have all of the form elements you need at your immediate disposal. You also need to be able to control and validate the data that gets entered into the form so that you can automatically compute scores on scorecards and identify important differences between respondents. You need more than free-form text-boxes – you need text boxes, check boxes, radio buttons, and tables (for starters), and you need the ability to define checks not only on individual elements but across elements and across rows and columns of tables.

If you’re building a weighting function, the weights should add up to a pre-specified number, like 100. If you’re asking the vendor to enter a delivery time, it should between 1 day and the maximum amount of time you can allow, like 60 days. “Next month” should not be an allowable response. If you’re sending out a survey to your internal departments to determine an order of priority between 10 sourcing projects, you should be able to enforce that each priority number between 1 and 10 is used only once. (Otherwise, they might all be ones and twos, and that won’t help you.)

Furthermore, it should be really easy to create such a form, re-organize the questions, create sub-sections (or pages), and enable or disable sections by vendors. (If you’re creating a general purpose vendor qualification form, you might not care about the “technical infrastructure” of your office supplies vendor.)

1a. Can I build advanced sourcing grids?
After 10 or more years of RFx software development, you’d think that this question would be a no-brainer. You’d be wrong. There are deep differences in the way that different eRFX products build grids, and there are deep limitations in many of them as to how big the grids can get, and how manageable/unmanageable the process may be. Every sourcing consultant worth his or her salt has recent horror stories of users unable to build the grids that they needed, period.

So don’t believe anyone who claims that”all of the sourcing vendors in this very-long list have ‘good’ RFx platforms.” They all have RFX platforms, but you will often find that there are profound differences between them and that many may not be suited to your needs.

2. Can the forms be completed by the vendors off-line?

Let’s face it – if you’re diligent about supplier and product qualification, and quality, you’ll be collecting a lot of information. Information that the individual assigned to complete the form is not likely to have at her fingertips, information that might take a long time to collect, and information that might take a long time to input. The individual should have the option of completing the form off-line, at her convenience, wherever she is – on the shop floor, on an airplane, or at the wifi-less beach.

Also, in this situation it is beneficial if the vendor can designate multiple individuals to handle multiple sections of the RFx, and if each individual can access, and complete, only their sections off-line.

3. Are the forms secure and uniquely identified?

Let’s face it, if you’re going to allow off-line completion, you want to make sure that the forms that are uploaded were actually filled out by the intending party. (Otherwise, their competition could fill out the forms and answer “no” to all the required regulation compliance questions, causing you to immediately disqualify what could be your best new vendor.) Furthermore, if your vendor doesn’t have unique identification built in, then you’re going to have to come up with your own unique identification method to insure that attachments don’t overwrite each other when a vendor uploads their form, or, even worse, that the different users who upload the forms that contain just their sections filled out do not overwrite the filled out sections completed by other users with blank data.

I’m going to tell you right now – point blank – that most RFX vendors don’t have this capability – and that they’ll probably try to skirt the issue by pointing out that “their user authentication algorithm insures that only designated supplier representatives can log in to the system and access their forms, and this will imply that only they will have access to the forms, and that since they will be uploading the forms through their login, the form is automatically identified” except they’ll use significantly more words while blowing though the well-practiced demo at breakneck speed in an attempt to woo you with their sizzle in an attempt to leave you too stunned to realize that this most of what they are saying is BS.

The answer you want to hear is:Yes. We use built in DEC/RSA 256-bit or better encryption combined with a unique secure digital id that uniquely identifies the form instance by user, by supplier, by buyer, and by original template instance id. And you want to hear this within three seconds of asking your question, delivered in a confident tone with eye-contact and no squirming. Otherwise, what the vendor has doesn’t even come close and they’re trying the above weasel-tactic.

Why is all that identification important? If it was just by supplier and form template and user id, then if the supplier serviced multiple buyers through the same on-demand platform, the form could be uploaded to a different buyer! If it was just by buyer and supplier and form template, then each user’s upload could overwrite the previous user’s upload when multiple users are filling out a form on behalf of a supplier! If it was just by buyer and user and supplier, then you wouldn’t know what template to attach it to if the user had mistakenly created two forms with the same name (but in two different projects)! And of course, if it was just by buyer, supplier representative, and form template id, then if the supplier representative was actually an employee of a 3PL working on behalf of the supplier, the data could be attached to the wrong project and exposed to other suppliers!

4. How easy is it to export the response grids for analysis? To Excel? To Access? To an OLAP analysis tool?
Automated scoring mechanisms are usually not good enough to select a vendor, and they often eliminate vendors that ought not to be eliminated. How can you write a fair scoring algorithm for a space you don’t know that well? You could be building in your own uninformed bias, or (worse) that of a vendor who has “helpfully” provided you with an RFP template! (And I think you know what I think about some of those templates!)

In fact, your analysts will want to pull the data into their own tools. These could be just about anything, from Excel models to Access databases to OLAP analysis tools. The ease with which data can be moved out of the RFx tool and into desktop analysis tools is an extremely important consideration. Sure, e-sourcing vendors will tell you that all the analysis can be done within the tool. And in some cases they’re right. But don’t limit your flexibility, because what if they’re wrong? And furthermore, what if you just don’t have enough hours in the day to learn somebody’s custom tool set? That can be a big investment in time and effort, especially if you only run one event a quarter. You could forget everything you learned, and have to re-learn it all over again each and every time. Sometimes it’s better to forget about the vendor’s tools, and just dump the data to a product you know.


1. Can I define my own bid type?

Let’s face it – not every bid is as simple as a price per unit – especially since you should be taking landed cost into account. Furthermore, this is more than just allowing a user to define a unit bid and a freight bid per unit – it’s also allowing the user to define a fixed processing cost per unit while the application automatically factors in an expected value for a variable fuel cost and it is defining your own adjustment that corresponds to the various utilization costs associated with different products from different vendors. For example, if you’re in food service, each type of sauce packaging implies a different amount of waste – metal cans and plastic bags and lined box-board have different “stick” factors, and the easiness of “scraping” or “draining” the contents from the package often varies by package design (such as cube vs cylinder vs tetrahedron).

2. Can the tool support complex formulas, splits, and cross-lot rankings?

Building on question one, not only do you want the be able to support bids based on complex formulas, but you also want to be able to rank bidders based on their individual bids on different lots and based on their entire package bids. A supplier might bid 100K for lot 1, 200K for lot 2, 300K for lot 3, and 400K for lot 4, but be willing to bid 900K for all four lots (equal to a 10% discount if they get everything). Without complex formulas and cross-lot rankings, the supplier couldn’t enter entire package bids or discounts, and you will not be able to capture the full value available to you through the auction.

3. Does the tool integrate with an optimization solution?

Complex formulas and cross-lot rankings are a good start to getting the lowest bids, but they do not capture all of the complexity associated with a sourcing scenario, and, thus, do not guarantee that the outcome of the auction will be an allocation that optimizes your total cost of ownership. Simply put, a dual-source strategy is preferable to a single-source strategy from a risk management perspective. A given supplier might be willing to make considerable infrastructure improvement investments if they get the business, resulting in year-over-year cost reductions that could, over a three year time-frame, significantly undercut the lowest bid another supplier is willing to give you today.

The reality is that most auction tools don’t support real-time optimization, and most of those that do support real-time “optimization” don’t support it very well, but that’s okay. The point is do they integrate with an optimization solution – since any high-value scenario on strategic categories or commodities should involve a separate optimization step where you run multiple what-if scenarios to understand what your business rules are costing you, what risks the lowest-cost solutions are exposing you to, and what the most valuable award is when you balance cost and risk. Thus, you should be able to easily import the results of the auction that you use to collect the initial bids, as well as easily create rules that guarantee the winner(s) of the auction receive a minimum amount of the award. (Remember your auction etiquette – if you don’t award to the winning supplier(s), you’ll damage your reputation. If you’re going to use auctions to collect bids for optimization, you should be willing to guarantee a minimum award to the winning suppliers. And if you properly define the bids and rankings, with an appropriate multi-source strategy, this shouldn’t be a problem. If you have a special situation where you think it might be, then use a multi-round sealed-bid auction instead of an open auction.)