Category Archives: Auctions

ScoutRFP – Spreading their Silicon Sunlight from the Western Shore

When we last covered
ScoutRFP back in 2014, they were hoping to help laggard Procurement organizations leave the dark ages (Part I and Part II) and enter the modern age. Launching with nothing more than an easy RFP solution (which was a 15 year old solution at the time), ScoutRFP has taken off like a rocket in those organizations that needed an easy, lightweight, solution for everyday events with a price tag they could afford.

The RFP solution was, and still is, 100% SaaS and designed to work with minimal inputs. It guided the user through a minimal workflow to create the RFX, select the suppliers, evaluate the responses, and make a decision. It was very flexible, allowing the user to create the RFX to the level of detail they wanted, or keep it high level (and cut and paste the instructions and questions from Word). And it gave the organization visibility into, and some control of, spend. The CPO could define a hierarchy and see what everyone was doing, the directors could see what their teams were doing, and the buyers would see their events — and all the reports could roll up as well. It was simple, but it hit the suite spot of low complexity and low price for organizations trying to crawl out of the unlit Procurement dungeons.

It was such a hit that, based on this capability and reception alone, ScoutRFP was able to secure $2.75M of funding in 2015 (from NEA, Zapis Capital, and Google Ventures) to extend the platform and raise an additional $9M of funding this summer in a series A funding round. And move west (to San Francisco).

Since then, ScoutRFP has added basic e-Auction capability, project management and savings tracking, Supplier Information Management, and an improved Supplier Portal.

The platform now has the ability to track all requested, current, and upcoming sourcing events and their associated status; categorize the events using any desired organizational categorization scheme; quickly initiate new events (RFX or Auction) from the pipeline; and even auto-include re-sourcing events when contracts are set to expire. Requested events can come from any organizational stakeholder with budget or spending authority, and all spend can be placed under (minimal) management.

In addition to this new project management capability, the savings tracking capability can sum up all savings for a period of interest, in real-time, based upon (negotiated) price differentials and (expected/purchased) volumes, or savings numbers (to date) provided by appropriate Procurement or AP reps. The data is tracked in a drillable fashion and a manager can quickly see how the totals compare across categories, departments, and employees. This allows the manager to ensure that high-value categories get sourced first and that buyers who aren’t delivering value get training (or replaced).

The SIM functionality is basic. It allows the organization to track all supplier information of interest, tag the suppliers with key-phrases of interest (for quick selection by category capability, geography, performance, etc.), and build lists for quick selection in sourcing events. There’s no scorecarding or performance monitoring, but it can be used as a supplier master and it’s easy to get data in as supplier data can be loaded from existing platforms, and updated data can be pushed back out to existing platforms, using the API. And the platform makes it easy to track supplier activity — events they participated in, questions they asked, bids they made, and so on.

In the current version of the platform, suppliers can have their own portal where all of the bids they have been invited to by all of their customers are accessible through a single log in, or, if the supplier prefers [or customer(s) demand(s)], they can have a separate portal for each customer. The suppliers also have the same collaboration features available to the buyers and can invite their peers to collaborate on bids and survey responses.

The system is shaping up nicely and for an in-depth dive on ScoutRFP, and the platform, including its strenghts and weaknesses, see the recent Pro series [membership required] over on Spend Matters (Part I, Part II, and Part III) [membership required] by the doctor and the prophet.

Serex – Bringing Auctions Back to Procurement

At this point in time, you’d think reverse auctions would be old news in Procurement, seeing that FreeMarkets was running reverse auctions twenty years ago and the doctor has repeatedly bashed their use in strategic sourcing (because they are not strategic), but they’re not.

There are two reasons for this.

1. They have an important role to play in tactical Procurement.

and

2. Companies new to strategic sourcing are still convinced by first generation solution providers with great marketing teams that they are still the greatest thing since the spreadsheet and that the historical savings opportunities are still there.

And while the doctor would like to think that the majority of buyers of these solutions fall in group 1, the reality is that the majority of buyers fall in group 2, and, once acquired, will treat every strategic sourcing event as a nail and use the auction tool as a hammer. So if that is the case, then the buying organization better get the best damn auction tool out there (since they will still need the auction for the tactical procurement nails when they figure out there is a better way to do strategic sourcing, and will actually need the auction tool more).

And these organizations will need a useable solution. The reality is that while just about every suite and point-based sourcing and procurement vendor offers an auction tool, not all of these are good auction tools against modern standards. Many first generation tools have no way to bulk select suppliers, bulk select products, bulk upload starting bids, import historical data, bulk upload attachments, etc. — ease of use capabilities you would think that would be standard. In fact, for the most part, only the newer reverse auction tools from smaller best of breed vendors targetting the mid-market tend to have the usability one would expect.

Usability and efficiency capabilities in an auction tool is key. I’ve heard countless stories about big organizations taking 1 to 3 weeks to set up a large global auction for large bill or materials or global category in a first generation tool when that same auction could be set up in a modern tool in 1 to 3 hours.

And this is where Serex comes in. Serex is an interesting entrant in the e-Procurement space. Originally founded 23 years ago to help clients select, implement, deploy and effectively use CRM and marketing automation systems, something it still does to this day, a few years ago, after a routine meeting with a client that asked if it had systems to support buying, it decided to enter the e-Procurement space when it found out that its client had tried, and passed on, over a dozen auction and sourcing platforms because not one met its need. (Serex was shocked at this as it knew there were a lot of solutions and assumed some were good, but figured it one Global 3000 couldn’t find a useable solution, then there must be other companies in this group that couldn’t find a useable solution either.)

So, after securing beta customer support (and a commitment for monthly guidance from the CPO with over two-decades of cross industry experience in large mid-size and Global 3000′s as well as weekly buyer availability), they began development of a new auction solution that would be developed by buyers, for buyers, and used by buyers. (And it is. Serex’s first customer saved 6M in year one and since full launch this year, its first few clients have logged over 14M in savings. And this is one reason why all of its prospects are large mid-size and Global 3000 organizations, despite the fact that the solution best fits the mid-market, which they have traditionally served on the CRM side.)

The reverse auction solution was designed to enable buyers to quickly set up and run auctions through quick bidder search and selection, quick product search and selection, quicker selection of which suppliers can bid on which products, and default auction parameters (which can easily be overridden). Complete product specs can be defined or uploaded as attachments if needed. Suppliers can send detailed messages during the auction to request or offer alternate delivery dates or substitutions for quicker delivery, and a buyer can update the auction specs as needed. In addition, all auctions are saved and new auctions can be created as copies of old auctions, and then updated as needed, allowing repeat auctions to be setup in just minutes (which is valuable if a product sells better than expected and an auction needs to be repeated on short notice to meet demand). (The auction platform has a built in attachment viewer that displays standard web formats.)

And that’s the solution. With the exception of a product manager sub-component and a bidder management sub-component, there isn’t even an RFX, which is probably the biggest short-coming of this new e-Negotiation tool — because sometimes you just want a simple tool to collect bids and make a decision. This is the biggest weakness of the tool. But Serex built it in a little over a year, and can easily build it out considerably in the next year. SI expects that in two years it will more or less compete on par with the other best-of-breed e-Negotiation mini-sourcing suites aimed at the mid-market along with adding capabilities that will cause larger organizations to adopt it onside their first generation Source to Pay platforms that they are locked into (but which are not useable enough to use on the majority of procured categories).

EC Sourcing: Getting Ready to Take the Mid-Market by Storm

When we last checked in on EC Sourcing, they had recently released an updated version of their basic e-Negotiation suite, Flex RFP, and their Supplier Corrective Action Reporting (SCAR) solution. Their e-Negotiation suite had straight-forward RFX, auctions, and a basic contract repository that was the 80% solution at the time. It couldn’t compete in the big leagues, but that wasn’t the focus — the focus was the majority of the market that the big players were ignoring (by selling overkill solutions the market didn’t need at a price point the market couldn’t afford).

The platform also had basic project management built in to allow customers to define projects — which include suppliers, users, RFXs and/or Auctions; message with users and suppliers — through integrated message boxes and e-mails; and define notifications in addition to standard project management features — such as timelines, state tracking, and document management. It also supported 4 languages, multi-currency, and formulas in auction and RFX weighting, it was a solid solution, which is further evidenced that about 1/3 of their client base are actually Global 3000s that realized that they didn’t need an overkill solution at an absurd price point to meet their daily sourcing needs.

Since we last checked in a few years ago, they have been developing steadily — improving both the base solution and adding new modules and capabilities, including some not found in the majority of e-Sourcing platforms (even when the big guys are included). They have added supplier management and workflow management and improved everything across the board (including, but not limited to, their internationalization with support for a dozen languages so far). The three biggest changes are:

Supplier Management

Their new supplier management module contains everything you would expect, including, but not limited to, self-registration, deep supplier meta-data management and search, and out-of-the-box Big ERP Integration. The supplier management module supports self-registration. When a supplier self-identifies, it will be presented with the default questionnaire(s), and upon initial review, the buyer can select the supplier for on-boarding, generate a full profile, and request that the supplier complete it. The buyer can define as many fields (across questionnaires) as they want, and each field can be tagged, filtered, and searched. Plus, the module, like the rest of the platform, integrates with JDE, Oracle, and SAP out of the box.

Workflow and Configuration

EC Sourcing has moved well beyond basic project management and now includes procurement request functionality (which can kick off a workflow outside of Procurement), deep approval and routing capability, customizeable status information associated with each task, and custom workflow definitions that allow a user to define a complete workflow for any sourcing project, with direct links into the relevant parts of the platform. All of these workflows are 100% configurable by the user, who can create them as templates, copy them, and customize them as needed for each sourcing project. Very few sourcing platforms have this capability, and no other mid-market solution has Procurement project management at this level of configurability and completeness.

e-Sourcing Automation Capabilities

It might sound trivial, but EC Sourcing’s new capabilities that allow the platform to:

  • automatically identify and invite all approved suppliers for a product/category
  • automatically attach specifications to an RFX on a line-item basis
  • automatically calculate advanced weightings and scorings (when the event is created from a template using advanced lots)

is extremely powerful, especially for large events and junior buyers.

Some categories (like office suppliers, MRO, etc.) have hundreds of line items and, for national (and international operations) that are collectively provided by thousands of suppliers. Even if each product or service specification (document set) can be located, uploaded, and attached in 2 minutes, for 210 items, that’s 6 hours of manual labour. And if there are 5 potential suppliers for each item, and no supplier can supply more than 50, it’s easy to conceive that there may be 1,000 different, pre-approved, suppliers. The manual time it would take to identify those 1,000 suppliers and then identify the lots they are allowed to bid on and configure that could be days.

However, with EC Sourcing’s auto-identification and auto-association capability, all approved suppliers in the SIM database can be automatically identified and invited to just the portion of the RFX/e-Auction they have been qualified to bid on and, if the documents follow a naming convention, all of the specification documents can be uploaded in a single zip file and the system will automatically extract the documents and associated them with the line, lot, or event as appropriate. This, as we noted above, can save days of a buyer’s time.

With the recent acquisition of classic mid-market leaders like Iasta (by Selectica, now Determine) and MarketMaker4 (by Xchanging), there are few providers that have been around since the noughts, fewer still with as mature a platform, and even fewer still with almost 2 decades of strategic sourcing advisory and consulting (which is how EC Sourcing started out before it realized that an organization could be much more effective powered by a proper platform as opposed to just a crack sourcing team with limited bandwidth). As a result, EC Sourcing is poised to make a big splash in the mid-market, and with the recent release of its newly upgraded solution, is sure to make one in the years to come.

e-Auctions — Savings Machine or Inflation Nightmare?

When e-Auctions were first released, they were heralded as the saving grace that Procurement was waiting for because early efforts, in the early 2000s, were always a smashing success with double digit percentage savings on almost every category and endless praise and admiration for the Procurement organization, and their astuteness in the selection of an e-Auction provider to help them find more savings than the organization knew existed.

But mature organizations know that the glory days didn’t last. The next time the auction was run on the same category, double digit percentage savings became low single digit savings, which, if the organization was lucky, barely covered the cost of the pay-per-use auction platform and the services around it. Then, a few years later, when the third auction was run, costs increased, sometimes substantially in the double-digit percentage range that almost equalled the savings found the first time around. The savings machine became the inflation nightmare — run an auction, spend more money.

Auctions were dropped like a hot potato, old-school muscle was broken out of retirement, and in a few organizations, Procurement returned to the dark ages. But now, with many mid-market companies able to afford next generation sourcing suites where pay per use starts in the four digit range and can be put on a P-card and where unlimited use starts in the mid-five figure range (and not the high six figure range), auctions are making a comeback, and the cycle is starting all over again.

But this time, those of us who have been in the game for over 15 years know how the story ends, and can honestly tell you Auctions are not a saving grace. They are an out-of-control spend nightmare.

To understand this, one has to understand why auctions worked in the first place.

  1. The outsourcing and rightsizing crazes of the 80s and 90s pushed more and more spend out, while oversight remained the same, and this resulted in less and less oversight on the majority of categories. As a result, suppliers could keep inflating their margins because of “inflation”, “oil price increases”, “minimum wage increases”, etc.
  2. The lack of market knowledge resulted in most organizations not knowing the breadth of the competition or the true production costs.
  3. The lack of e-Platforms meant that most organizations could barely handle 3-bids and a buy with the usual suspects each time contract renewal went up.

It was the perfect profit storm for suppliers. But with the introduction of auctions:

  • Suppliers could self identify and the buyers knew the extent of the marketplace.
  • Hungry suppliers with efficient processes could afford to offer the product at cost + 10% whereas long-term suppliers who believed they had no competition got fat and lazy and needed 1.3 x cost + 10% to remain profitable. (Also, desperate suppliers could offer for perceived_cost in the hopes of using the award as a loss leader for future business.)
  • Running the auction on line in real time gave hungry and desperate suppliers auction fever and they often bid the majority of their margins away. So where there were 40% margins, there were 30% savings.

But here’s the thing. With respect to savings, Auctions didn’t do anything. Exposing market truths isn’t identifying savings. Reducing margins isn’t identifying savings. And hastening the process isn’t identifying savings. The same “savings” could have been identified with an RFX.

Especially when those margin reductions hurt the supplier. A supplier that is suffering has to increase margins or go out of business. And inflation is back, so if the supplier is at rock bottom pricing, and the costs are going up, what is the supplier expected to do? Bid less and go bankrupt?

Savings is identifying better products, better processes, more innovative suppliers, better delivery schedules, and fat that can be trimmed to reduce cost. Savings isn’t about reducing a supplier’s fair margin to nothing.

And this lack of ability to deliver true savings is just one of the many problems with auctions. To find out the rest, download Sourcing Innovation’s latest paper on The Dangers of e-Auctions today, sponsored by Trade Extensions, before one of the big problems brings your supply chain to a screeching halt.

Why You Should Not Build Your Own e-Sourcing System, Part III e-Negotiation

In Part I, where we noted that Mr. Smith was right in his recent post over on Spend Matters UK where he pleaded with those organizations, and particularly those organizations in the public sector, who thought they could build their own e-Sourcing system not to, we gave a host of reasons on why they should not because, like Mr. Smith said, they are

  • going to waste OUR money building it,
  • waste exorbitant amounts of money keeping the system up to date and compliant with ever-shifting legislation, and
  • only feed those dangerous delusions at best (and possibly create an epic disaster as 8 of the 11 greatest supply chain disasters of all time were caused by technology failures, and 6 as a result of software platform failures)!

But we know this isn’t enough to convince the smuggest and most deluded from considering the notion. So we are diving in and addressing some of the difficulties that will have be conquered, one primary module at a time, continuing with e-Negotiation, which encapsulates e-RFX and e-Auction.

An e-RFX system has the following key requirements:

  • Flexible Construction
  • Fine Grained Security & Auditing
  • User defined weighting factors for comparison

And an e-Auction system has the following key requirements:

  • Flexible Lotting
  • Configurable reverse auctions with multiple parameters
  • Real-time Distributed Communication with Fault Tolerance

Let’s start with the flexible construction requirement for RFX. Since there are dozens of vendors with decent e-RFX solutions on the market, one may fool oneself into thinking that this is easy. And while it is easier to build an e-RFX solution than just about any other Sourcing (or Supply Management) platform, if usability is a goal, it’s still not simple or straightforward. Qualification questionaries could contain a dozen sections with dozens of questions each. Advanced tabbing and pagination with dynamic expansion and compression depending upon answers and level of detail needed is an absolute must. Moreover, most supplier organizations will require input from multiple people to complete the RFX (sales, finance, production, etc.) and will need to assign parts, but not all, of the RFX to different individuals so fine-grained roles-based security will be required on the supplier side as well as the buyer side with organization, department, and user level settings and overrides.

Now let’s jump over to the flexible lotting requirement for e-Auctions. Sometimes a buyer wants to put a single product (such as laptops when an entire department is due for upgrades) out to bid, sometimes the buyer wants to put an entire category (such as office supplies) out to bid, and sometimes the buyer wants to bundle products and services (such as MRO parts and installation services). And sometimes the buyer wants to put all of these lots into a single multi-round auction. Capisce?

In addition, both platforms will require the ability to define user-defined weightings against each survey response and bid so that the buyer can compute a weighted score for each supplier or lot. And these won’t always be simple — especially if the buyer wants to weight a fuel surcharge based upon product weight and supplier region. That’s not a simple modifier, that’s a formula. And these formulas can get pretty complex in complex tenders created by a sophisticated buyer.

Moving back to the auctions, we also have the requirement that the auction must be customized each time against a host of parameters that will include, but not be limited to, bid floors and ceilings per item and lot, minimum decrements, automatic time extensions, minimum time between bids for a single supplier, and so on. Furthermore, all of this must be evaluated in a system that supports …

Real-time Distributed Communication with Fault Tolerance. In an e-Auction, multiple bids are coming in at the same time, multiple updates must be pushed out at the same time, and formulas and weightings must be calculated and updated in real time so each supplier sees their true relative rank, and not just their true relative bid. This might sound easy-peasy, but you have to remember that even the average CS graduate has trouble with programming for concurrency. (Remember, the doctor was an academic in his former life and knows this to be true. Most Universities care more about $$$ than knowledge conveyed, most untenured professors care more about publishing, as opposed to perishing, than teaching, and most tenured professors are worn out and just don’t care. As a result, as long as the program is able to read the test data and create the right output, in one case, that’s enough for a pass. It’s sad, but true.)

And while this is just a high level overview of the challenges, the hope is still that it is sufficient enough to convince you that development is not an easy task and not an idea that the average organization should remotely entertain.