Category Archives: Auctions

marketdojo – A Dojo Where You Can Walk Your Own Way

marketdojo is a company that many of you haven’t heard of and a company that I’m sure many of you who have heard of them dismissed because of the Western notion of what a dojo is. In western thought, a dojo is believed to be a training school for Japanese martial arts where students to to learn from a sensei. So when you hear marketdojo, the first thing you probably think of is a training school for (e-)commerce best practices and a services company — not a do-it-your-self SaaS e-Sourcing platform.

But that is what marketdojo is — a state-of-the-art do-it-yourself e-Negotiation suite that supports complex RFX and e-Auction events as well as integration with their categorydojo product that helps a user determine appropriate sourcing strategies for each category and prioritize those categories based on the expected size of the opportunity.

And they are appropriately named. One has to remember that dojo literally translates into “place of the way” and really means “a place for students to gather for practice, training, and testing”. Furthermore, there are also hombu dojos, which are the stylistic headquarters of a particular art. marketdojo is the hombu dojo for the do-it-yourself e-Sourcing art where the practitioners of the marketdojo way gather.

And while they were yet another me-too e-Sourcing tool when they started four years ago in 2010, they have taken great strides to differentiate themselves from the other entry-level e-Sourcing suites that revolve around e-RFX and e-Auction. These differentiators include:

  • Try-Before-You-Buy with no sales team interaction*while there have been a few e-Sourcing providers that would set you up a demo environment and let you take it for a test drive, SI doesn’t know of any that put their full platform up on a demo box where anyone could log in and test out all of the features without first engaging with the sales organization, sitting through the pitch, and proving their interest; To give marketdojo a test-drive, you go to the Sign Up page, fill in a short form, click on the link in the activation e-mail, and then click on Try Our Sandpit at the top of the home screen. No credit card required. It takes about 60 seconds. (You do, of course, have to pay before you can run a live event, but not before you’ve verified that it will work for you.)
  • Toggle View
    In the marketdojo platform, it’s a one-button click to toggle between your buyer view and the view of any supplier. No logging out and logging in as a separate user or trying to watch two views in two different browsers at the same time on a split screen.
  • Easy Public and Private Sector Event Creation
    In many economies, and the EU in particular, there are a lot of rules around public sector tenders, and the platform, with a single checkbox, can insure that all of the proper information is provided, questions are asked, and procedures are followed or, if the company is a private sector company, the buyer can go through a streamlined process and only provide the information she needs to provide and only request the information she needs to conduct the event.
  • Easy Pay as You Go
    You can pay per drink or buy an unlimited subscription on a monthly or yearly basis. To pay as you go, which starts at £500 for a single event, you purchase credits as needed on your credit card and go. There’s no limit to event size or event duration — and if you want to run an event on a category that’s under £50,000 of annual spend, they’ll even give you a discount!
  • Complex Lotting and BasketsNext month marketdojo will be releasing their new version which allows you to create complex lots and market baskets where each item can have a user-defined number of cost components and a formula that defines the total, or weighted, cost for the item and have the supplier provide their starting bids at whatever level of detail you desire. Then, when the auction is run, you can choose whether suppliers modify their bids at the cost component level, item level, market basket, or entire lot level — and do so as a fixed quote or discount off of their previous bid. This helps a buyer get a good understanding of what the cost drivers are but yet run easy events.

In addition, like other providers, they also offer:

  • Excel Import and ExportThis is especially useful with complex lots — you can create the desired matrix, and a supplier can export it, fill it in, and upload it at their leisure. You can also output reports and awards in Excel for further analysis or imports into other systems.
  • Easy Integration with their Other Tools
    They have two other tools — categorydojo, which we will cover in our next post, and innovationdojo, that you can read about on Spend Matters UK. While SI is, of course, a big fan of Innovation, and innovationdojo is innovative within the e-Sourcing space, these types of tools have existed in IT for quite a while now so the doctor isn’t all that excited about the shiny new e-sourcing friendly wrapper they put on what was an IT / product management tool (which, the doctor will admit, are as typically as ugly and unfriendly as you can get, but when you grew up with a green command prompt on a blac screen, you just get used to ugly UIs).
  • Award ExportOne click export to Excel OR their categorydojo, where you can compare your sourcing event plan and projected savings to actual savings and increase your accuracy year-over-year!

And since this takes us into Part II, we’ll end our initial discussion of marketdojo here.

* They are based in the UK, so if you try it out in the evening in North America, the sales team will be at home and won’t be online to ping you to even see if you want to chat.

 

Keelvar: Are They Right For You?

As a preamble, in today’s post we’re not going to discuss whether or not optimization is right for you because the answer is an unqualified “it is” because there does not exist a vertical that is unable to benefit from an appropriate optimization solution that supports the right model. If you are a 100M+ company, you should be using optimization. Maybe not on all categories, because you don’t source categories where the return doesn’t exceed the cost of the effort, but on the large and strategic ones.

Instead, as a follow-up to yesterday’s post, we are going to discuss whether or not Keelvar is right for you.

Right now, most of the companies that use optimization are in the high-end of the market, with a few leading companies at the high-end of the mid-market dabbling in it. Furthermore, most of the optimization solution vendors out there are focussing on this market. As a result, as per a previous post, most of the mid-market is not using optimization because they see it as too costly and too difficult. Seeing this, Keelvar decided that what was needed was a solution that was focussed entirely on the mid-market and, more specifically, at the lower end of the mid-market. That’s the solution they built.

This has advantages, in that they have a large market they can go after, and disadvantages in that the simplifications required to make the solution useable by that market limit the solution’s flexibility and power for large problems that require complex models and powerful solutions capabilities. But since the high end market already has good solutions, that’s okay. Given the different needs of the lower mid-market, the higher mid-market, and the global multi-nationals that need almost customized solutions, and the different needs of well-staffed and well-educated Supply Management organizations and poorly-staffed organizations that need to augment their solutions with a lot of services, there is still plenty of room in the market for a new entrant as even the six market segments just defined (3 tiers, without services and services required) aren’t adequately covered by the current players.

So if you’re in the lower-end of the mid-market and you’re ready to start optimizing your sourcing, you should head on over to Keelvar’s site and check them-out. The solution might just work for you, and with event pricing starting in the low five figures and unlimited annual licenses starting in the extremely low six figures, it won’t take long to see an ROI — especially since Keelvar makes optimization affordable on an event basis on categories as low as 500K to 1M and on an unlimited basis on categories as low as 100K to 250K (because if you have an unlimited license, why not use it on every event — it doesn’t take long for 10K savings to add up!).

Keelvar: Strange Name. Uncommon Results.

In our last post we talked about a new entrant to the Strategic Sourcing Decision Optimization arena that was about to take up the education gauntlet. That new entrant is Keelvar. A spin-out from the 4C research laboratory in the Department of Computer Science at University College Cork that raised 750K Euros in 2012, it was formed as a Software-as-a-Service (SaaS) company to help purchasers establish a balanced and cost-effective outcome between large and small suppliers, which can be critical to indigenous industry by way of a price-gathering mechanism that supports communication of creative ways in which waste can be removed, helping government departments and multinational companies reduce costs. (Source: Silicon Republic)

It does this by augmenting its auction and RFX-based technology platform with true strategic sourcing decision optimization technology, but doing so in such a way as to hide the inherent complexity from the average buyer. Unlike many competing solutions on the market, the Keelvar UI is designed using a wizard-based workflow that guides the user in the setup of a combinatorial auction that is then solved using an optimization engine that uses a mix of solver technology developed at the 4C research laboratory and commercial solvers.

The solution walks the user through a simple process that even an average buyer can handle. The user needs to only:

  • Define the event typeThe solution comes with a number of pre-configured event types, each of which has appropriate corresponding bid templates.
  • Select the products and services and define the lots (contracts)The bidding sheets can be auto-generated off of these templates.
  • Select the suppliersWho will be bidding? The system then sends out the appropriate auto-generated bid sheets, tagged to each supplier.
  • Accept the bidsWhen the bids are returned, the user has to specify what bids are accepted and are to be used in the scenario.
  • Define the constraints.For each pre-configured event type, the system supports a number of pre-defined constraints. These include:
    • Supplier Limits (Risk Mitigation)
      where the buyer specifies a minimum or maximum number of suppliers
    • Award Splits (Allocation and Capacity)
      where the buyer can dictate that a supplier, or the winning suppliers, get an award split, minimum, or maximum award
    • Quality/Delivery Requirements (Qualitative)
      if the model is a freight model, the suppliers can specify lead times and the buyer can insist upon a maximum lead time, etc.
  • Run the ScenariosThe solution then runs the unconstrained scenario, the constrained scenario, and outputs a report that summarizes the constrained scenario cost, the number of bidders, and how much more it costs than the unconstrained scenario.
  • Define What-If Scenarios (Optionally)The user can specify constraints to add or drop, run the scenario again, and compare it previous (and the unconstrained) scenario.
  • Output a full award reportOnce the user is happy with a scenario.

It’s as easy to use as an auction tool, which is something that cannot be said for many of the optimization solutions out there, and no math or understanding of optimization is required. Plus, it’s a true SSDO solution as it is based on solid mathematical foundations (as the scenario can be built and solved as a MILP model), supports true cost model (as some of the templates allow different cost factors to be defined), supports reasonably sophisticated constraints (and enough to meet the minimum requirements of a SSDO solution), and has what-if capability. It’s definitely not the most sophisticated or powerful tool out there, but it doesn’t need to be.

For your average mid-size company at the lower end of the range, the solution gets the job done and does it in a way that the buyer can understand. There are thousands upon thousands of companies out now that don’t need more than this.

So if you’re in the lower-end and you’re ready to start optimizing your sourcing, you should head on over to Keelvar‘s site and check them-out. The solution might just work for you.

Supply Management Should Drive M&A Evaluations

But don’t look to e-Auctions to save the day. As per SI’s recent post, the entanglements of e-Auctions could get in the way.

Last fall, e-Sourcing Forum published a two-part series on M&A and e-Auctions, stating that what’s old may be new again (Part I and Part II), which claimed that e-Auctions could be a perfect tool for procurement in post M&A scenarios as they provide a competitive advantage for industries frequently involved in M&A activities. They can, if the situation is right, or they can be as useful as a trap door in a life-boat. There is no one-size fits all sourcing tool, and if you get it in your head to force-fit a sourcing tool to your situation, e-Auctions should be on the bottom of your list because they can bust as bad as they boom.

The rationale presented for their selection as the potential perfect e-Sourcing tool in the post-merger environment is based on the fact that e-Auctions can:

  • put negotiations directly into the hands of the suppliers,
  • create fair competition between suppliers by creating a level playing field,
  • provide suppliers with more direct/immediate feedback on their position in the market, and
  • drive “truer” market pricing and justifications for establishing baselines post-merger.

This is all true provided that:

  • the majority of suppliers, including those that are currently preferred, are willing to negotiate through the auction,
  • the buyer designs the auction in a way that is fair to all suppliers,
  • the auction platform can support real-time feedback to all suppliers taking part in the auction, and
  • the suppliers don’t collude and don’t make unrealistic bids in an effort to win the auction, hoping to make up the unsustainable loss either in volume or add-on fees or future business.

In order for auctions to work, especially in a post-M&A scenario, a number of conditions need to hold true.

  • supply has to at least equal, and preferably exceed, demand as per our post on the entanglements of e-Auctions,
  • there has to be enough qualified suppliers to make the auction competitive — if only two suppliers can supply the custom product or service you need, the auction ain’t gonna do squat except offend suppliers who should be your strategic partners,
  • there has to be enough volume to make the event worthwhile — saving 1% on 100,000 is not going to be worth the time and effort, and, most importantly,
  • there has to be enough categories that meet these requirements that are available to source in the first year, as it will typically be the case that both companies have contracts in place for a large number of their high-spend or high-volume categories, and, furthermore,
  • these categories have to be significantly larger than they were before the merger — if the merger does not yield enough common categories that are available to source at volumes that are high enough to be more attractive to the supply base than each company would source on its own, then the merger / acquisition is not going to yield any sourcing quick wins by way of e-Auction.

If neither company has a lot of spend under contract, neither company has a large number of complex products or services that can only be sourced from one or two suppliers, and both companies source a large number of overlapping products and services, then, if the market is ripe, the supply base is willing, and the buying team can design and deliver a fair and professional e-Auction, then e-Auctions can drive M&A success. But if the opposite is true, all e-Auctions will do is get the M&A team into trouble.

As with every sourcing exercise, it must start with a situational, and spend, analysis to see what’s what.

The Entanglements of e-Auctions

Not too long ago, Procurement Leaders (PL) published a piece on “the pitfalls of procurement auctions” that did a good job of exposing some of the traps in Procurement Auctions. It is worth a read, but it missed a few entanglements that also need to be understood in order to determine when, where, and why an auction should, or should not, be used. In this post, after reviewing the traps of the PL piece, we will discuss some of those.

According to the piece, there are four main traps of Procurement Auctions:

  • lack of auction knowledge
    The author notes that many business have a pre-conceived notion of what an auction is, even though the concept is very broad and flexible and can be adapted to your business needs. Modern e-Auction platforms support upwards of ten types of auctions, many of which are described in the e-Auction WikiPaper the doctor co-authored years ago.
  • lack of an appropriate platform
    As a result of lack of knowledge, many Procurement teams will lock in with an e-Auction provider before understanding what they really need and settle on a platform that, while great, isn’t right for them.
  • lack of supplier interest
    Auctions don’t work unless you have enough suppliers who can meet your needs who are seriously interested in winning your business. This will generally only be the case only if there are multiple suppliers who can supply the good or service you need (that are not locked in non-compete agreements with your competition that would exclude you) that see your auction process as fair, transparent, and efficient.
  • lack of planning
    As noted above, there is no auction type or platform that is “one-size-fits-all” so you need to select an approach that is flexible and you need it to be repeatable when you need to run the auction on the category, or a similar category, again in the future.

These are big traps, but not the only ones. Four more traps include:

  • lack of market knowledge
    Auctions generally work well when supply exceeds demand and generally work poorly when demand exceeds supply. A buyer who runs an auction at the wrong time will generally not get good results.
  • lack of supply market knowledge
    Just because a supplier is interested in bidding doesn’t mean it should be allowed to bid. Only qualified suppliers that have been confirmed to have the necessary capabilities should be allowed to bid. Otherwise, an unqualified supplier could win the business or suppliers, seemingly separate but in league, could collude to keep prices high. (Do you really know what goes on overseas?)
  • lack of e-Sourcing expertise
    Auction’s don’t have to be stand-alone events. They can succeed RFxs and they can preceed decision optimization. They can include real-time optimization and rules for sole-source awards, split-awards, baskets, etc. The right knowledge can not only lead to the selection of the right type of auction, but an auction that complements the overall sourcing cycle.
  • lack of perceived trust
    As per this article on the potential pitfalls of e-Auctions over on the MIT Sloan Management Review, suppliers often see open-bid auctions negatively. They believe that the buyer is using an open-bid auction to unfairly force prices down through the inclusion of unqualified suppliers or fake bids.

Don’t be afraid of e-Auctions – they work great when used appropriately. Just don’t rush in until you do your planning.