Daily Archives: October 29, 2010

Reverse Auctions Are Not Strategic. It Isn’t Always Strategic! Part III

This isn’t to say that they aren’t important, that they’re not one of the best methods at your disposal to quickly identify current market prices, to obtain products or services at market prices in a competitive market, and to increase transparency in your strategic sourcing efforts but, on their own, reverse auctions are not strategic.

A reverse auction is simply an electronic way of enabling a simple bidding opportunity that could just as easily be conducted in the real world (if your supplier representatives were willing to travel to the auction location to place their bids). Do you think strategic when you think of this type of public auction? No. And simply electrifying something does not make it strategic.

An online reverse auction (has the potential to) open up the auction to more potential suppliers, drive greater market transparency (if more suppliers choose to participate), and streamline your product or service acquisition, but nothing about this is strategic. It’s simply good tactics.

This isn’t to say that a reverse auction can’t be the end result of a true strategic sourcing effort. For example, if you are sourcing custom manufacturing services for a new, relatively unique, product that you are preparing to unleash on the marketplace and you have went through a supplier pre-qualification round to select a small group of suppliers you would be willing to jointly develop with (who have all received the confidential specs under NDA), you could decide to simply hold a reverse auction to streamline what could otherwise be a time-consuming multi-round RFX, but note that this is just the tactical implementation of a sourcing strategy for a strategic category. The reverse auction itself is not strategic!

And it’s definitely not strategic if you’re sourcing $1,800 worth of office supplies or store shelf inventory!

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Has The Time for One Vision Arrived?

One man, one goal, one mission

One heart, one soul, just one solution

One Vision, Queen

Back in the early 1980s, somewhere on the Redwood Shores of California overlooking the San Francisco Peninsula, there stood a man who had a vision that was decades before its time. The man was Larry Ellison and his vision was that ONE system would power the entire global enterprise. Under his leadership, Oracle worked frantically to develop an end-to-end platform that would make his dream a reality, and in the mid 1990’s, Oracle had enough base functionality that each and every aspect of an entire global enterprise could be run off of one instance of Oracle. A significant number of Fortune 500 enterprises then started down the path of implementing Oracle across their enterprise, but due to the effort and costs involved, most of them abandoned the effort before reaching completion. As a result, even though 98% of the Global Fortune 500 use Oracle today to power significant parts of their business, you can count the number of business that run their entire operation off of one Global instance of Oracle (including Oracle itself) on your digits.

And it’s unfortunate. Even though Oracle, like any ERP or platform provider, will never compete against best-of-breed in any specific area of functionality, a pinpoint focus on best-of-breed ( BoB ) solutions can create more weaknesses in your platform then they claim to fill. Because without a solid, unifying platform:

  • There is no common framework for application integration.
  • There is no centralized data store.
  • There is no single version of the truth.

It has taken a while, but thanks to the intensive efforts of the niche sourcing advisory practices and the spend analysis software and services providers, people are starting to realize that you can’t truly do proper sourcing, which must be based on a solid understanding of TCO, if you can’t even see all of your associated costs. And while most good data analysis tools will allow you to ETL/merge multiple sources into one cube, if you have conflicting data, which is right? (And to even get this far, you might have to define custom translations for each data source as each could be using a different coding and indexing scheme, as there is no common framework that connects the applications.)

Furthermore, how can you make fact-based decisions on the fly, which you often have to do in the real world, if your current spend report (or, more likely, dangerous dashboard) only contains partial information? And when you’re looking at a spend report, how do you make sense of $10 Million on Contingent Labour if you can’t dive into that data because it’s in a separate, BoB, solution maintained by your Managed Services Provider (MSP)?

We’re quickly reaching the point in time where there’s no way you can maintain a competitive supply chain operation if you can’t get to the right version of the truth in real-time when you need to make a decision. And the only way you’re going to do that is if all of your core procurement data — direct, indirect, services, contingent labour / Statement of Work, and T&E — is in one place. Even Coupa, a Procurement solution directed at the mid-market, realizes this. Not only have they built a solid Procurement platform that can capture all1 of your spend data, but they have worked heavily on exposing their APIs so that if you already have an ERP or central data store (or warehouse), you can easily integrate Coupa with the ERP (or central data store) and maintain one, consistent, version of the truth.

I’m not saying you shouldn’t use BoB, in fact, as I will argue in a future post where I ask if now is the time of niche, you should use BoB wherever and whenever it brings value, but only if you can integrate the BoB solution and, more importantly, the data it captures, into a central solution so you always have access to the full picture. Because, even if it costs more up front, the value it will enable year after year will be immeasurable.

1 I will submit that there are some types of spend data that their platform is much more suited for and that their platform does not handle all types of spend with equal adeptness, but that’s not the point.

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