As I just finished my recent series on The Role of Optimization in Strategic Sourcing, I wanted to run a few recent case studies to demonstrate the power and benefits of optimization to make it clear just what you’re missing by not using this wonderful piece of sourcing technology. Since I talk with some of the people at Trade Extensions regularly, I decided to ask them since it seemed like the quickest (and easiest) way to get what I wanted.
Now, I must say that I was a little surprised by what I received, and you might be as well. Now, many of you probably know that Trade Extensions powers BidSmart by Schneider Logistics, that it is used by A.T. Kearney in many of their high-profile consulting engagements and that, like their peers, they have several of the largest Fortune 500 companies in the world as clients. What you may not know is that they also have a significant number of public sector clients in Scandinavia, including the cities of Stockholm and Gothenburg, Greater Stockholm Public Transport and The Swedish National Traffic Agency. The case studies I received detail just a few of their successes within this sector.
Even though optimization isn’t restricted in terms of applicability, when you consider that:
- most public sector operations, at least in North America, are woefully behind the private sector
- most public sector operations, at least in North America, require the “lowest bidder” to win the award, no matter how unattractive their bid might be or how poor their past performance was
- most public sector operations, at least in North America, have so much red tape and politics at play that getting the cross-functional team on-board necessary for success is a pipe dream
the last thing I was expecting was a set of public sector case studies.
So what did optimization do for the very forward-thinking Swedish public sector?
- It reduced the cost of cleaning services by over 6%.
This amounted to a savings of over 200,000 Euros of up-front saving plus considerable on-going administrative savings as the ability to accept a package bid reduced the number of contracts that had to be administered from 42 to 1! - It reduced the cost of bus services by over 1,000,000 Euros.
While the average cost reduction was only 2.4%, in the public sector where union wages rise every year (with the cost of petrol [gas])), that’s pretty good — especially when the routes for a bus service are fixed! - It reduced the cost of road resurfacing (while reducing the risk of possible collusion between suppliers) by over 1,000,000 Euros!
Again, while the average cost reduction was only 2.7%, since union wages and the cost of materials rise every year, this is also quite good! Also, the design of the event (a large number of contracts were split into 2 separate contracts, one for the production and delivery of asphalt to a specific site, and one for the laying of the asphalt) had the desired effect in terms of allowing smaller suppliers to participate in the event. - It reduced the cost of domestic travel (w.r.t. flights) by over 55%!
Before the Trade Extensions event, which allowed bidders to submit bids on single contracts or a combination of contracts, the average contract cost for the Swedish National Public Transport Agency for the long distance public transport system was about 13,500,000 Euros a year. After the combinatorial event which considered 27 bids from 8 bidders, the cost was reduced to about 6,000,000 Euros a year! Incredible!
If you want more information, feel free to contact Chetan Raniga (chetan <dot> raniga <at> tradeext <dot> com), Business Development Manager (Americas) at your convenience. He’ll be happy to discuss these, and other, sourcing categories (and case studies) with you.