Monthly Archives: December 2007

The 12 Days of X-emplification: Day 5 – e-Procurement

e-Procurement is simply the automation of the basic procurement cycle using information technology and the internet. This cycle starts with a requisition, may or may not require an authorization, and centers around the creation, transmission, and fulfillment of a purchase order. Thus, it also involves goods receipts, reconciliation, payment, tax reclamation, and analysis.

Since e-Procurement is, or at least should be, very straight forward, and since the e-Procurement Wiki spends a lot of time defining the procurement cycle, necessary core capabilities, and important features, we’re just going to talk about the functionality that differentiates a true e-Procurement solution from a set of tools that don’t really provide you the value that e-Procurement is supposed to promise you. Thus, compared to many of the posts in this series, this post will be short and sweet.

1. Does it support requisitions, orders, goods receipts, invoices, and m-way matching in an integrated fashion?

You don’t just want two way matching, or even 3-way matching – you want m-way matching that gives you the ability to match all of the data in the system that relates to a given purchase order. Before the purchase order is issued, you want to make sure it matches the requisition that was authorized. Before an invoice is paid, you want to make sure that it is for the items in the purchase order, that were received and annotated in the goods receipt, at the rates agreed to in the contract, and at the rates in the current price list if the contract rate is defined as a discount off of a catalogue or market price. Thus, even 3-way invoice to purchase order, goods receipt, and contract might not even be enough functionality for every buy! And anything less definitely will not cut it!

2. Does it integrate with a modern supply network offering that lets you and your suppliers manage your catalogue and pricing as appropriate?

Let’s face it – the whole point of e-Procurement is that it’s supposed to make the process of buying easy! If you have to use a separate application to find what you need, and then manually enter that information into your e-Procurement application, that’s not easy. Moreover, the “compliance” and “decreased maverick spend” many vendors promise will never materialize, because you can’t even be sure the purchase order is correct since human error can creep in at the requisition stage. (The buyer can get the product identifier wrong, the product wrong, or even the price wrong. And if a vendor gets a purchase order with an approved purchase price that is higher than what’s in the contract, do you really think they are going to point that out?)

3. Does it integrate with your payment system and allow payments to be correlated to invoices?

A lot of the e-Procurement solutions out there don’t do e-Payment, and that’s fine, as long as they recognize that it’s not an e-Procurement solution if it doesn’t recognize payments! Simply noting that an invoice is paid is not only not very useful (especially if the supplier disputes the fact), but probably not in compliance with good accounting practice or Sarbanes Oxley. At least one system has to track complete payment information and correlate that to invoices in your enterprise, and I don’t know about you, but I thought that was procurement, and, hence, that the capability belongs in an e-Procurement application!

The 12 Days of X-emplification: Day 4 – Contract Management

Contract Management is important. If you don’t acquire the goods and services at the negotiated prices, what was the point in spending all of that time coming up with the best award and negotiating the contract? However, as a colleague of mine once remarked, most of the “contract management” solutions on the market today don’t do more than what I could do with a Microsoft Access database and a high-school programmer, which is, quite frankly, not much!

Thus, in order to help you separate the wheat from the chaff, here are some basic questions that you should be asking of every vendor that tries to sell you a contract management solution, and an enterprise contract management solution in particular (where questions 3, 5, and 7 become particularly important). The fact of the matter is, if they don’t even pass this sniff test, you might just be better off downloading a free open-source document management system and using that – because a(n enterprise) contract management solution that doesn’t support a reasonable amount of inherently useful features isn’t any better than the electronic filing cabinet that you can find in at least a dozen free open-source document management solutions.

1. Does it allow you to define your own meta-data dimensions?

If the only meta-data the system supports is contract name, uniquely generated system id, supplier, effective date, and termination date – that’s not very useful. You also want to capture evergreen renewal dates, resource dates appropriate to the commodities being sourced, the goods and services covered by the contracts, the agreed upon rates, diversity information, compliance information, and a flag on any special conditions that are not standard among your contracts.

2. How easy is it to export the meta-data, or any desired subset, in a standard format recognized by any decent modern e-procurement, EIPP, or e-payment platform?

As I indicated above, the whole point of contract management is to make sure that spend is against contracts AT contracted rates. The only way this is going to happen in practice is if your e-procurement, EIPP, or e-payment system knows what the rates are and includes them as part of it’s n-way match algorithm that determines whether or not an invoice should be (automatically) paid as-is. The reality is that no one in AP is going to look-up and enter the rate for each item before an invoice is paid, because chances are they don’t even know where the contract is, or even what contract it’s covered under. In reality, if engineering or production indicates the goods were received, the invoice is marked for payment. And if the invoice is at a rate 10% over what was agreed upon, there goes another chunk of the realized savings that your bonus is based on. Therefore, it’s critical that the content management system can export, on a regular basis, current contracted rates for goods and services which can be imported into the relevant systems in an automated batch fashion, and approved by the appropriate administrators with a single click. Then the n-way match will happen against valid contract data, and you can be sure that everything bought on contract is bought at the contracted rate – allowing for significantly more realized savings (than the industry average of 30% to 40% reported by many of the analyst firms).

3. Does it support free text search? And does the free text search work?

You can’t meta-data everything, and even if you could, you wouldn’t want to. The only data that should be in meta-data is identifying information, agreed upon prices, important dates, diversity, compliance, and “special clause” flags that allow for quick identification of the right contract under targeted searches and easy export of the data needed by e-Procurement and Spend Analysis systems. Thus, when a particular question arises whether or not a certain service is covered under a contract, or a special case is covered by a 150-page contract*, you want to be able to perform a simple search on the contract text that will take you to the relevant subsection and clause. This requires a free text search – that works. It needs to be “smart”. For example, if you search for screw, you don’t want results that include “screwdriver”, and if you search for “tire”, results on “tireless” are even less useful!

Furthermore, it should work on contracts not natively created in the tool. These days, it’s going to be in a standard office document format, RTF, HTML / XML, or PDF – and since lots of free libraries exist for searching and indexing such content, there’s no excuse for the vendor not to be including this capability! (If the vendor is stoned enough to say that’s not true – that no one makes available such extensive functionality for free, just point out that Open Office is free across multiple platforms and it supports all those file formats, and many more!)

* I’m not saying your contracts should be 150 pages (in fact, I would say that they probably shouldn’t even be 15), but the reality is that many corporations have contracts this big (or bigger) because many lawyers appear to believe that their worth is measured on how complex and convoluted the contracts they draft are!

4. Does it support proactive alerts – on contracts NOT composed using the standard templates or built-in functionality?

Let’s face it, alerts are only useful if you can define alerts on every contract and, moreover, define them for every event you need to be alerted to. Once you install a system with “alerts”, users will quickly fall into the mindset that everything is fine unless they get an alert, so if you can’t program every event they need to monitor into the system, the installation of such a system will result in a large number of balls being dropped in the short term. Even worse, you might not notice that the ball has been dropped until something catastrophic happens. (Like an automatic evergreen renewal with a vendor who is not REACH compliant!)

5. Does it support buy-side and sell-side contracts?

From an enterprise perspective, a contract management solution that only manages half of your contracts isn’t much of a solution! This is another reason why you need flexible user defined meta-data – sales is likely going to be interested in different data than procurement is.

6. Is it easily accessible and usable by everyone in the organization?

If only a few users have access to it, it isn’t even as useful as a central filing cabinet. At least then all of the personnel could theoretically walk to the cabinet, find the contract, and if they need a copy, make a copy on the local photocopier and put the original contract back. Let’s face it – it’s not just procurement that needs access to an average contract over its life span – it’s legal, research and development, engineering and production, accounts payable, and business analytics, among others.

This means that you should be wary of any solution that is sold “per seat”, because you’re going to need a lot more seats than you have buyers in procurement.

Furthermore, it needs to be easy to use. Just because IT and Procurement might be power users, doesn’t mean accounts payable or legal is. ( After all, e-mail might still be new to them. ) If the primary navigation isn’t a dumbed-down GUI, chances are it won’t get used. (And again, I refer you to the free open source document management solutions if you want a solution that probably won’t get used.)

7. Does it support the creation and management of initiatives such as risk management and IP-based revenue generation around your contracts?

And now for the painful reality check – everything I’ve described so far can be accomplished by a high-school programmer with Microsoft Access and a few open source libraries. There’s nothing special or hard about the basic requirements that we have covered to this point. That’s why this last point is so important. If it doesn’t have built-in project management, or integrate with a project management tool, and enable you to undertake initiatives with respect to your contracts, it’s not a very sophisticated solution.

Although it is true that any solution that satisfies the requirements implied by the last six questions is useful, and probably a lot better than what many of you have today, it’s important to remember that such a solution is not a very sophisticated solution. Contract Management is another area where the vendors have been primarily selling sizzle and not steak for a long time now. Thus, even though the solution you need is a lot more than what most vendors are currently offering, it’s not a sophisticated solution and not one you should be paying more than five figures for (as you can get open source content and document management solutions that come pretty close for free).

Of course, even integration with project management isn’t that hard to do at the level I’m suggesting, but it is a step or two above trivial and hence justifies the foundations of a true enterprise contract management solution, whatever that shapes up to be.

8. How hard is it to get the data AND contracts out of the solution?

From a procurement perspective, a contract is only useful if you’re complying with it to realize the negotiated savings. If you can not easily export the data you need to check, and enforce compliance, in a format that is compatible with the ERP, e-Procurement, and / or e-Payment systems you use, it’s not that useful.

In addition, there might come a day when you have to change systems. Maybe a better system comes along, maybe it’s an equivalent system that costs significantly less, or maybe the current provider stops supporting the system. If there’s no simple way to export ALL of the data and attachments into a logical file and directory structure, chances are that the only way you’ll be able to get data into the new system is to manually enter ALL of it again. If you’re a large organization, this is one project you never want to have to undertake – especially since it should not be necessary with today’s technology!

The 12 Days of X-emplification: Day 3 – Optimization

As I highlighted in Questions to Ask your Optimization Vendor, not all optimization vendors are equal … and, more importantly, not all vendors that claim to have decision optimization even have it! Thus, not only is it important to know what to look for when searching for a true strategic sourcing decision optimization, it’s also vital to know what to ask and what answer you want to hear.

In this post I’m going to cover five key questions that you should ask of every vendor you are considering. Some of these overlap the questions I x-emplified in my previous post (which you should re-read), and a few of them are new. Of all of the topics I am covering, this is probably one of the least understood – and since this is one of the few technologies with the capability to allow you to reduce your spend year-over-year when properly applied – this situation has to change.

1. Does the application satisfy the four pillars of strategic sourcing decision optimization?

As outlined in the Strategic Sourcing Decision Optimization wiki-paper, the four pillars of strategic sourcing decision optimization are:

  • Sound & Complete Solid Mathematical Foundations
       such as simplex algorithms and branch-and-bound;
       many simulation and heuristic algorithms do not guarantee analysis of every possible solution (sub)space given enough time, and, thus, are not complete in mathematical terms
  • True Cost Modeling
       many bidders bid tiered bids, discounts, and fixed cost components – the model must be capable of supporting each of these bid types
  • Sophisticated Constraint Analysis
       At a minimum, the model must be able to support reasonably generic and flexible constraints in each of the following four categories
    • Capacity / Limit
         allowing an award of 200K units to a supplier who can only supplier 100K units does not make for a valid model
    • Basic Allocation
         you should be able to specify that a supplier receives a certain amount of the business, and that business is split between two or more suppliers in feasible percentage ranges
    • Risk Mitigation
         let’s face it – supply chains today are all about risk management, and you should be able to force multiple suppliers, geographies, lanes, etc. to mitigate those risks without specifying specific suppliers, geographies, lanes, etc. to take advantage of the full power of decision optimization
    • Qualitative
         A good model considers quality, defect rates, waste, on-time delivery, etc.
  • What-if Capability
      The strength of decision optimization lies in what-if analysis. Keep reading.

2. Does the application support the creation and comparison of multiple what-if scenarios?

The true power of decision optimization does not lie in the ability to find a solution to one model, but the ability to create different models that represent different eventualities (as this will allow you to hone in on a robust and realistic solution), to create different models off a base model plus or minus one or more constraints (as this will help you figure out how much a business rule or network design constraint is really costing you), and to create models under different pricing scenarios (to find out what would happen if preferred suppliers decreased prices or increased supply availability).

3. Does the application automatically identify the most constraining and costly constraints?

Let’s face it, not every constraint has a significant impact on the optimal solution, if it even has an impact at all. Restricting the highest cost supplier to 30% of the total award is unnecessary if the supplier is not going to get any award. However, restricting the lowest cost supplier to 20% of the award could be the most restrictive constraint in the scenario, as the supplier would get 80% of the award otherwise.

The solution should identify, in order of decreasing impact, which constraints are having the greatest effect on the optimal solution and, at the very least, provide a range estimate of how much the constraint is costing you in the model. Determining the constraints that significantly impact a scenario can be done deterministically – they are at their bounds. Determining the constraints that impact a scenario moderately can be done through a deterministic comparison with the optimal solution to the “unconstrained model” (where only supplier capacities, demands, and cost constraints are included). The rest of the constraints then impact the model slightly or not at all. Calculations that take into account the differences between the optimal solution to the model and the optimal solution to the unconstrained model can be used to provide a reasonable estimate of the cost of any particular constraint. Furthermore, an exact cost associated with the removal with any constraint subset can be determined by optimizing the modified model. This brings us to …

4. Does the application support the automatic creation and solution of relaxed and perturbed scenarios?

After the constraints with the most significant impact, particularly from a cost (or risk) perspective have been identified, it’s only logical that you want to know not only how much they are costing you, but how much a relaxation (as opposed to a removal) of the constraint would save you. For example, if you allocated 30% of an award to a new vendor vs. 20%, what would you save? The reality is that you really want to understand not just the cost, but the “cost per unit” of the constraint. If you have allocation splits, you want to know the effect of minor and moderate changes to the splits. If you have limit constraints, you want to know how much you could save with increased capacity (and, thus, whether the company should be making an investment into new technology or more production lines or entering into a strategic partnership with a key supplier to lock up more capacity). If you have qualitative constraints, could you save more if vendors increased their quality by 10% across the board (which is equivalent to allowing a 10% decrease in quality level in the model)?

For each constraint type, it’s pretty easy to come up with a standard set of “perturbations” that you would want to analyze using what-if analysis. The application should support standard perturbation templates that you can use to set up an over lunch (or overnight) run against a well-formed what-if scenario that would generate a variance report that would tell you not only what constraint relaxations would save you the most, but how much a per unit perturbation against the constraint would save you and let you hone in on an award allocation that will have the lowest total cost of ownership over the life of the contract – and not just on the day you run the what-if scenario.

5. Does the application support make-vs-buy and arbitrary product substitution?

If you’re only sourcing indirect, you might not care about make-vs-buy, but you should care about product substitution. Let’s say you’re a major player in the food service industry who caters to the average joe’s love of pizza. Since few pizzas are made without tomato sauce, you’re going to need a lot of it. But guess what – if you ask a supplier for “sauce” they’re going to say “how much”, “what type of packaging”, and “refrigerated or frozen”? Chances are there are 10 different “products” for you to choose from. And it’s not as easy as just saying “whatever is cheapest” or “I’m standardizing on form factor 27” because “whatever is cheapest” will vary by production plant (some types of packaging will be cheaper in some countries than others, some plants have newer technology for certain kinds of packaging, and packaging weights and volumes determine shipping costs). Furthermore, the availability of products is probably going to vary across locations. The way to get the lowest cost is to allow a supplier to bid ALL products that can meet your needs (and, of course, account for any variances in processing costs through adjustments). Thus, you want your strategic sourcing decision optimization solution to support arbitrary product substitution.

However, if you’re sourcing direct, you’re really going to want make-vs-buy analysis. Let’s go back to Mr. Martyn’s automative seat example. Do you source the seat? Do you source seat components and assemble them? If so, how do you define a “component”? Or do you source all the raw parts and assemble them? The reality is that even in this simple problem, you have over 1000 different options. Thus, creating a model where you source the finished components, creating a model where you source specific sub-components, and creating a model where you source all the parts, and doing a comparison report on their optimal solutions just doesn’t cut it. You might find that you save 10% by sourcing the components and having a third party assemble them, but who’s to say that there isn’t a different configuration of components that would let you save 20%? If you gave your suppliers the flexibility to choose their own components and the third party assemblers the opportunity to bid on the components they think they could assemble into the final product most cost effectively, who knows what innovation they might identify? In a make-vs-buy scenario, you can’t assume you know what the proper subset of models to analyze is. You really need to analyze ALL the options available to you.

The 12 Days of X-emplification: Day 2 – Spend Analysis

As you have probably figured out by the large number of postings to date on spend analysis, a strong understanding of the data behind spending is pivotal to the proper identification and management of your spend initiatives. Here are some key questions to ask, and answers you should be expecting.

1. How much flexibility do I have in spend cube creation?

Spend analysis is more than just one A/P level spend cube. It’s many cubes. It’s multiple cubes by supplier by commodity for contract compliance. It’s cubes for purposes outside “normal” spend analysis. For example, this could include an analysis of transactional data not necessarily related to spend per se, such as cell phone usage patterns or help desk support calls, but any data where an improved understanding can lead to process improvements which impact organizational spend. It’s cubes for throw-away analysis, cubes that are derivative of other cubes, and so on.

So, you need to be able to build your own cubes, modify your own cubes, and, in many cases, map your own cubes*. This needs to be easy and fast, so that your analysts spend their time analyzing the data, not wrestling with the data for days or weeks before the analysis can even be started.

* The exception is when you know the data has been properly mapped by an expert in the data source you are using. However, this is not the normal situation at most companies, especially in commodity and indirect spend, and you will find that you have to do mapping the majority of the time.

2. How should I deploy spend analysis?

It doesn’t make sense to share a spend cube between your analysts, unless you want to set up a UFC Grudge Match in the hallway to decide who gets to implement his/her changes next. Unlike the central data warehouse, analysis cubes need to be private, not public (although sharing public cubes can be useful for casual informational purposes). The popular notion of a central data warehouse as the basic ingredient for detailed data analysis is wrong, and that’s why there’s so much unhappiness among data analysts with both BI systems and with the majority of spend analysis systems today.

3. What if I am resource constrained, and I need to outsource spend cube services?

Make sure that if you outsource cube development to the vendor, or a third party that works with the vendor, you can do it in such a way that your own people get trained along the way, so they can take over at any time. With the exception of the more complex direct spend categories, which require complex bill of materials and engineering-specific knowledge to properly map, most spend isn’t that hard to map, and this is especially true in the purchase of commodities. Furthermore, you need to make sure there’s more than one source for services with the spend analysis system you select. This is not only because you might want to throw the services business out to bid, but because you don’t want to be waiting on a resource constrained vendor every time you have spend to map and need help. (Let’s face it, just because you should be able to do mapping on your own, this doesn’t mean you’ll have the skills or insight to be able to do it the first time without some help.)

4. How much reporting flexibility do I have?

Reporting is where the rubber meets the road, and despite marketing noise to the contrary, no set of static reports will get you past the first corner. If your analysts are downloading transactions to their desktops in order to construct a report or conduct an analysis, that should be the first clue that your spend “analysis” system isn’t an “analysis” system at all.

It should be possible for your analysts to construct new reports and models easily and quickly, and they shouldn’t have to be IT experts. After all, that’s the whole point of spend analysis!

5. What should I know about data cleansing?

Cleansing is a term that involves “classifying” like items together (for example, multiple entries of “IBM” in the vendor master) and “mapping” spending to a useful sourcing commodity hierarchy. Classification is mostly the elimination of redundant vendor entries, although when collecting spend from multiple sources, it can include the creation of over-arching General Ledger and Cost Center categories. The spend analysis vendor should provide hierarchy classification tools that make the classification process simple.

Some spend analysis vendors make a big deal about classification, but 95-97% of the problem is redundant entries, not issues such as “Lotus” being owned by “IBM.” You’ll find that in most cases your own commodity managers are well aware of who owns whom, and don’t need any help in this area; but if you’re still doubtful, there are third party vendors who will create a who-owns-whom hierarchy out of your Vendor Master for $0.10 to $0.15 per line item.

Spend analysis vendors also make a big deal about mapping, but that process is also straightforward in the majority of commodity and indirect spend categories. (Direct spend categories, where you have to create hierarchical bill of materials that allow you to determine the impacts of raw material or labor cost increases and to perform make-vs-buy analysis, can be quite involved, but unless you are a manufacturing organization, this is not the norm.)

Make sure your spend analysis system supports an overlay-type mapping scheme that allows you to prioritize mapping rules or mapping rule groups in a reasonable way. Prioritizing rules is important, because it allows you to apply basic engineering principles (the famous 80-20 rule) to mapping your spending. The idea is to organize your rules such that each successive rule group maps more and more specifically, but also so that each successive rule group can focus on a smaller and smaller number of transactions. Using simple techniques that are widely published and well known, you can be up and running with a 90% spending map in just a few days. (And this is usually more than enough to allow you to perform initial analysis to find key categories to focus on as part of your first set of spend management initiatives after acquiring a real spend analysis system.)

You should also ensure that the vendor provides a way to map free-form text descriptions. These can be helpful in cases where there is little or no useful information in terms of supplier or GL coding in commodity and indirect categories or missing engineering classification codes in direct categories.

6. Does the tool support derived and ranged dimensions?

A good tool will not only support various time periods, such as day, week, month, quarter, and year, and time period – over – time period analyses, such as month-over-month, quarter-over-quarter, and year-over-year analyses, but will also support other types of ranged dimensions, such as spend size (that will allow you to bucket your suppliers for a commodity into small, medium, and large spending buckets by dollar volume) and risk level (that will allow you to group your suppliers into low, medium, and high risk buckets based on derived risk factors).

7. Can the user fix any set of filters they choose while pivoting and drilling down into reports?

This might not sound that important, but when trying to figure out why a certain spend category is 2M over last year, when an initiative expected to reduce costs by 10% was undertaken, can be difficult if you can’t find the key source of the problem. For example, let’s say you, as the telecommunications sourcing professional at a large national organization with hundreds of locations, decided to switch long distance carriers. If all divisions and business units implemented the change, then costs should be less, not more (unless everyone is calling significantly more than expected). However, let’s say that IT and HR didn’t switch at ten of your largest locations. With a dozen divisions, and hundreds of locations, it could be difficult to determine this unless you can drill into the data, fixing divisions and units at each step, and find out that 30 intersections of division and business unit are spending more than last year. Then, drilling into each you find that 15 of these are still paying, and thus using, the wrong carrier. However, if you can’t fix multiple dimensions, or apply filters that achieve the same effect, you might only be able to figure out that IT is spending more – and then you might have to call 50 locations to figure out which ones haven’t switched. Flexibility in the analysis and reports is key!

8. What if I have multiple accounting systems?

This is actually excellent news, because you are likely to have huge opportunities for savings, given that those systems probably haven’t been combined in any reasonable way before for spend and procurement analysis.

The key for spend analysis is to ensure that the vendor provides an effective tool for translating (the “T” in the “ETL” acronym) files from one format to another. As with the other spend analysis system tools, this tool must also be accessible to, and usable by, your business analysts. You should never let yourself be at the mercy of IT or a spend analysis vendor when trying to analyze new data sources, or when merging new data sources into an existing cube.

With independence comes power; and ensuring that your analysts can control their own data processing and reporting is the key to spend analysis success. This brings us to our last question.

9. How easy is it to get data in and out of the system?

Importing data should be a piece of cake. It should simply be a matter of pointing the system at the appropriate file or URL connection, specifying the dimensions of the records to import, and pressing “import” to get the data in. Then, as pointed out in the last question, transformation and mapping should be easy for even a junior business analyst.

In addition, since the goal of spend analysis is to identify spend reduction projects, it should be easy to get the data out that you need to not only create a spend project in your sourcing system, and track historical costs, but justify the project’s creation.

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.

e-RFx

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.

e-Auction

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.)