Category Archives: Auctions

Trade Extensions: No Rest for the Wicked-ly Powerful – Part I

It’s been less than five months since we last checked in with Trade Extensions, who had traded up to a Fact Sheet User Interface and added a slew of new features, including improved RFI support, multi-dimensional rankings in e-Negotiation, Google Earth integration, new incumbent rules, and an OLAP foundation to reporting, including the implementation of a new n-way comparison report. Since, then, it would appear that Trade Extensions have been working around the clock to add a host of new features in auctions, reporting, award management, scenario creation and analysis, and feedback mechanisms. They are advancing the platform so fast that only a few companies in the space are currently keeping up with their rate of development. And while nothing added in the last few months is earth shattering, Trade Extensions has again taken usability to a whole new level, which is the key to adoption, use, and, ultimately, cost avoidance and reduction in your sourcing organization.

Auctions

Probably the biggest improvement is the new wizard-based interface that defines different types of RFX and Auctions, including Quick Quote and Simple Auction, that simplify event creation. In the new wizards, the user only needs to define the critical information necessary to create the event and can, if the user so chooses, define everything necessary to set up straight-forward RFXs and Auctions, including lots, on a single screen. While the workflow-driven wizards provided in many of today’s platforms are good, if you just need a quick quote or are auctioning office supplies, you just need to set it and forget it. The platform’s newfound ability to handle simple events with ease while simultaneously allowing for the creation of the most complex events one can think of is quite powerful for an organization that wants a single tool to handle the whole gamut of sourcing events. Now a user can define how much information is required to define an event and enter just that, whether it be a few pieces of information or a few hundred pieces of information. In addition, the new bidder UI is slick, clean, and quite easy to use.

Reporting

Trade Extensions, which supports the Fortune 1000, has added new multi-project reporting which allows for the creation of (roll-up / drill-down) reports across projects. The user can select any set of projects and any set of scenarios in those projects and create a roll-up or comparison report across those projects on any set of dimensions and facts that they choose, which can be organized in a user-defined row-column format. One of the things that Trade Extensions noticed was that a number of users, even when their new OLAP reporting was rolled out product-wide in January, were still downloading reports to Excel for the sole purpose of reformatting them into a preferred or dictated format. So they built this capability, including pivot table functionality, into the tool. Combined with the ability for a user to create fields defined on just about any formula (macro) the user can imagine, there is now no need for a user to have to export to Excel for analysis or report formatting. It’s a very impressive leap forward in reporting and goes well beyond the reporting capabilities of most of the on-line sourcing and procurement platforms that SI has seen.

Award Management

Trade Extensions has created a new set of rules that allows a user to define a scenario that uses allocations from an existing scenario for any subset of the award that they want to fix. No longer does a user have to copy the scenario and define fixed award rules, which can quickly lead to unsolveable scenarios if the user has 20 rules and messes up one or two to create a conflict that results in an unsolveable scenario. Just point at an existing scenario where part of the award is acceptable, indicate that the award for items X and Y at locations A through M are acceptable, and the tool will fix those allocations and build a smaller model that will solve faster (instead of a bigger model with more constraints that solves slower).

Come back tomorrow for Part II which will address the rest of the cool new features in Trade Extensions’ new release.

Cost Reduction Success Requires More Than a Reverse Auction

As more and more companies have found out over the past few years, it takes more than a well-structured reverse auction to cut costs, especially during a recession. If your organization is not yet a next level supply management organization, here are a few tips to get you on your way.

Understand the Need
The current market environment is to do more, and grow more, but spend less. It’s an economic paradox, but it’s the reality for the time being. As a result, any company that fails to achieve continual cost reductions might find themselves the next victim of the jobless recovery.

Accept the Reality
Despite what South Park might suggest, it is not possible for an entire company to bury its head in the sand to get through some trying times. Nor is it possible to ignore the need for continual cost reductions even if there are no obvious “low hanging fruit” opportunities left to pick.

Negotiation is Not Enough
The days of yelling, table banging, and threatening to take the business elsewhere are long gone. Margins are tight across the board and no supplier is going to risk survival for a customer who may, or may not, be around next year. A moden organization needs a number of tools at their disposal, including good spend analysis and e-Negotiation solutions.

Make The Business Case (to be a Technolgy Ace)
Given the do more but spend less mantra, the C-Suite will probably want Procurement to get by with whatever tools they have now, even if those tools aren’t more powerful than a pencil, paper, and abacus. Fortunately, numerous studies exist documenting the ROI of Spend Analysis and Decision Optimization solutions that prove that these two solutions, on average, each deliver a year-over-year return of over 10% (and are the only e-Sourcing solutions that fall in that category). Thus, if Procurement focusses on Spend Analysis (to identify its most profitable opportunities in the short-term and the long-term) and an e-Negotiation suite that contains Decision Optimization (in addition to modern RFx and e-Auction technology), it has a lot of ammunition.

Focus on Erosion of Savings
Generally, 40% (or more) of negotiated savings in an average organization are never realized due to maverick spending and non-compliance on the part of the supplier. Implement e-Procurement policies and solutions that can ( a) prevent the approval of POs to non-contracted suppliers without appropriate executive sign-off and ( b) automatically m-way match each invoice to goods receipts and purchase orders (verified to be at contracted rates) and prevent payments until all items have been delivered and billed at contracted rates. While not perfect, as there will always be emergencies that require off-contract spend, such a solution will get an average organization from 60% to 90% compliance, and if the negotiated savings was 10%, increase implemented savings by 50%, which is a substantial amount on a multi-million category.

Work as an Interdisciplinary Team
It’s important to work with the joint S&OP team to insure negotiations, and buys, are based on good forecasts and with engineering to not only make sure the raw materials and component parts but to help them, during NPD, select alternate sources of supply that can reduce costs from step one.

Communicate, Communicate, Communicate
Procurement requirements change everyday, and if the organization is buying last year’s materials on last year’s forecasts, one can be sure that opportunities for savings are lost.

For Successful e-Sourcing, Put the Supplier First

An article in a recent SIG Newsletter on “eSourcing from the Supplier’s Perspective: Improving Bid Submissions and Event Outcomes”, that was contributed by Denali (who deliver) made a couple of very good points if you want a successful eSourcing event. These points can be succinctly summarized as “design the event from the suppliers’ perspective”. If it doesn’t work for the supplier, it isn’t going to work for you.

As the article states, while many benefits are usually touted to the supplier to get their participation in an eSourcing event, at best, the supplier typically only realizes two benefits: fair(er) competition and an easy(ier) quote process. As a result, the supplier gets discouraged by the whole process and, if the supplier does not win a (significant) award, the supplier is unlikely to participate in future events.

Basically, you have to avoid “the reality chain” that is repeated over and over again as more and more companies hop on the eSourcing bandwagon unprepared for the journey ahead. In “the reality chain”

  1. Supplier begins with little or no knowledge
  2. Supplier reaches out, but receives no guidance on requirements or evaluation criteria
  3. Supplier submits a bid that does not meet the buyer’s need
  4. Supplier receives no feedback as to why
  5. Supplier is discouraged

As a result, not only is the buyer’s event only moderately successful at best, but the buyer’s potential supply base for future eSourcing events has shrunk. However, if the buyer had considered what suppliers want and supplied:

  • detailed RFX requirements
  • post-bid feedback
  • well thought-out RFX
  • more stakeholder communication
  • opportunity to provide alternative solutions
  • evaluation criteria

Even if the supplier lost, the supplier would be encouraged by the process (since the supplier would know why the lost and what they need to improve next time) and the buyer would not only have a successful event, but lay the foundation for successful events for years to come. In other words, if the buyer designs the event from the suppliers’ perspective, success is much more likely.

For more details on how to achieve the level of success required, check out “eSourcing from the Supplier’s Perspective: Improving Bid Submissions and Event Outcomes”.

Next Generation Sourcing

As stated in yesterday’s post, for Sourcing to continue to have an impact in a modern Supply Management organization, it needs to be taken to the next level. And I’m not just echoing the statements of The Altimeter Group, AMR, CAPS, Greybeard Advisors, The Mpower Group, Purchasing Practice, or my own persistent ramblings over the years (as I have been pushing for Total Value Management and Next Generation Sourcing strategies since day one). A modern supply management organization truly needs to take their sourcing practices to the next level if they are going to continue to distill value from Sourcing.

When you consider that:

  • Once you institute RFX, the manpower savings from automating bids can only be claimed once.
  • By the time an organization gets to the third auction, there are no more savings to be had as the fat from supplier margins has been squeezed out.
  • Once the allocation has been optimized across the supply base in a way that minimizes unit costs, transportation costs, (interim) storage costs, etc., re-running the optimization won’t lower costs further unless something changes — such as the identification of a new supplier, an alternate material (that is cheaper), or additional demand (that increases the economy of scale).
  • Once contract management and monitoring is put in place and no invoices are paid that are not for delivered, defect-free products, at contracted rates, there is no more on-contract leakage to be stopped.
  • Once controls are put in place to stop off-contract purchases that should be on-contract (through integration of the e-Procurement system with the Contract Management system), there is no more off-contract leakage to be stopped.
  • And once spend analysis has identified all the opportunities, the savings won’t actually materialize until something is done about them. This something cannot be appropriately identified unless the appropriate information is available to the knowledge worker.

As a result, in order for a mature Supply Management organization to continue to extract considerable value from (e-)Sourcing, e-Sourcing needs to be taken to the next level. Whether you call it DDSN2 (Demand-Driven Supply Networks), Next Practices, or Total Value Management, the message is the same. Take your Sourcing to the next level, or risk decreasing returns.

So where does one start? Upgrade or bring in a modern e-Sourcing platform. For some organizations, who are already using a top-tier provider and who have purchased a suite license, this will just mean learning how to take full advantage of the end-to-end integrated functionality and improving processes. For others, using point solutions from top-tier providers, this will mean buying licenses to the whole suite and/or integrating the point solutions with other solutions they already have. For the market majority, this will likely mean either replacing existing first generation systems (from providers who haven’t made any updates to the base functionality in the last five years) or, in laggard cases, skipping first generation e-Sourcing systems entirely and starting off with modern systems that have better, integrated, functionality.

And then, once these systems are in place, processes are updated to capture more data and consider more information in sourcing decisions, in a process that one vendor on the leading edge likes to call High Definition Sourcing.

Since this process is the closest to what Sourcing Innovation believes is necessary for organizations that want to take their sourcing to the next level (and, in the words of CAPS, become value-focussed), this will be the subject of the next series of posts (starting next week). Stay tuned!

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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