Category Archives: Auctions

Intengo – Doing the e-Sourcing Tango in Turkey

Intengo is a relatively new provider of e-Sourcing/e-Negotiation solutions that first appeared on the scene in it’s Native Turkey in 2006, after being founded in 2005. Like b-pack in France, it’s just starting to expand internationally, focussing on Europe first with translations to Spanish, French, and German (in addition to its native Turkish and new English language support) currently in the works.

Intengo provides an on-demand e-Negotiation platform built around (multi-round) e-RFX and e-Auction with a sprinkling of supplier information management (SIM) and catalog management thrown in. Their tool allows you to mix and match RFX and Auctions in successive rounds as you see fit. You can start with a baseline RFP, invite qualifying suppliers to an (English, Dutch, or Japanese) auction (with more variants in the pipeline), then return to a sealed bid RFP with the winners in a final negotiation around*1. It’s quite flexible and allows the organization to tailor the e-Negotiation event to their way of conducting negotiations.

It is extremely quick and easy to set up a new event, or “project”, in the system as the process is wizard-driven. It’s literally as easy as:

  1. define the basic informationevent name, details, manager, dates, and type
  2. define what the bidders can and cannot seecompetitors names, prices, ranks, etc.
  3. define the basic information and the ruleswhich can be from a template or custom defined
  4. define the itemswhich can be selected from the hierarchical catalog or defined on the spot
  5. select the supplierswhich can be selected from the supplier master or defined newly for the event
  6. define boundary parameters and extension rules (for auctions) min and max bid increments, reserve prices, etc.

One of the jewels of this solution is that the auction dashboard is jam-packed with information but yet designed in such a way that it doesn’t look the least bid cluttered. The buyer (and the bidders, with appropriate permissions) can see full event configuration details (starting, ending, extensions & rules, whether or not names and prices are hidden, etc.), current supplier rankings and percentage changes for each bid (in each lot), all bids for each item (with the lowest bid highlighted in green, and the changes from the last bid highlighted in yellow), the countdown clock, and a progress / trend graph. The bidder can also easily access the configuration screen through the management tab to extend the auction and the entire bid history through the bid list tab.

Other hidden jewels are the calendar view, which integrates with outlook and hot-links to all of the relevant screens in the relevant projects, item level multi-currency support, where the buyer can choose to define the currency or leave it open for the bidder to choose and where the buyer can choose to accept the default rates from the central bank or override with manual rates, smart unit support, fine grained access control for corporations or governments that need to limit who can see what, and the ability to easily do bulk updates on (filtered) lots so that a bid decrement (fixed or decrement) can be applied to all bids in the lot. (In comparison, many of the “commodity” auction tools don’t have fine-grained multi-currency control, automatic unit conversions, or such granular access control.)

And while the SIM and Catalog Management is basic, the user can define custom hierarchies and include supplier ratings, which is more than sufficient for many mid-market companies that still haven’t even touched modern e-Sourcing platforms. The major weakness, which is common to many of these platforms, is the lack of a custom report builder. There are built-in reports, and Intengo can build custom reports for any company that wants them, but no ability for a customer to build her own report. However, they do have Excel integration and a buyer can dump all of the information to Excel and construct her own reports which is a decent workaround if the user knows how to build a good template (where it’s just a matter of importing the exported data as needed).

They also have integrated messaging (and the ability to send e-mails), reasonable attachment management capabilities, and a moderately powerful administration section where a user can update the company profile, update their personal profile, define display settings, manage users, add and update templates for RFXs/Auctions/Projects, define additional units, input custom exchange rates, and modify the configuration profiles. All in all, it’s a solid tool for the mid-market, and one that they can offer at an affordable price-point as they are a SaaS solution. If you’re a mid-market company in Europe who is looking for a solid e-Negotiation platform to get started on the e-Sourcing path, you should definitely consider inviting Intengo to the table.

*1 If you take this approach, be sure to remember your auction ethics where you tell your suppliers up front that the winner of the auction doesn’t necessarily get the award as the auction will be followed by a final negotiation round with the top X suppliers. In addition, this strategy should only be employed in categories where you intend to split the award between two or more suppliers from the get go for risk mitigation.

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Unscrupulous Supplier Reverse Auction Tactics

Are you prepared for them?

The best part of a recent ChainLink Research piece on “Contract Management: Negotiating, Creating, and Monitoring Compliance” was actually the sidebar on supplier reverse auction tactics that presented some of the less-than-scrupulous strategies sophisticated suppliers will employ in an attempt to win, or deflect, your business. If you are not prepared for them, they could derail your event. They include:

  • bidding to purposely come in second with less aggressive price, counting on advantages in non-price areas
  • bidding low on the auction in an attempt to capitalize on lock-in to sell un-auctioned related services and materials at high margins
  • “Sniping” in “hard-ending” auctions
  • Deliberately no-bidding auctions when they calculate it is not in their interest to participate

So what can you do?

  • if you are using a total weighting, be very careful in your weighting of non-price factors and indicate, up-front, that there will be significant (and serious) financial penalties (which must be enforced) for not adhering to any promises on lead-time/delivery time, defect rate, or quality (or other relevant factors)
  • make sure you also bid out all related and associated services
  • don’t do hard-ends — always do short extensions
  • create a policy that suppliers who do not bid do not get business, period

While some suppliers might still attempt to ply their dirty tricks even if you take these steps, once they see what it costs them, they’ll stop. Or you’ll get better suppliers. Either way, you win.

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While Reverse Auctions Are Not Evil, They Are Not Salvation Either!

Despite the frequent misquoting of the work of Dr. Bob Emiliani, which is regularly used to slam reverse auctions (see Spend Matters), reverse auctions are not evil, and, used on the right category at the right time, they can provide a company with double digit savings.

However, despite the claims that appear to be made in this recent ChainLink Research article on “broadening the scope of reverse auctions”, they are not salvation either. While it’s true that some companies have proven that e-auctions can generate double-digit savings year after year, this doesn’t mean that your company will see double-digit savings, and, as pointed out in a brief history of optimization, sometimes reverse auctions result in cost increases, which can be significant.

Not only does the comprehensive auction have to be conducted properly to be successful, but the following has to be true if the company is going to see meaningful savings:

  1. There must be enough serious competition in the market.There should be three or more suppliers who can meet the company’s need at an acceptable quality level and who are willing to actively (and aggressively) compete for the business.
  2. There must be true savings potential.The company must collect index and benchmark data and determine with reasonable certainty that it’s current price is significantly higher than the (expected) average market price.
  3. The company must be ready and able to commit to the winner.If not, this will damage the company’s reputation and drive away those suppliers who could (potentially) work with the company to find ways to decrease cost.

If these basic criteria are not met, you will not see (significant) savings, and the auction will likely be a waste of time at best.

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Why Aren’t Reverse Auctions More Commonly Used?

A recent blog post over on Procurement Excellence asked “why aren’t reverse auctions used more by procurement people”? According to the article, it’s usually because:

  • procurement people sometimes lack the confidence to run them
  • procurement people are often scared of running auctions because they might expose how badly they are currently buying

Fair enough. They do require confidence and if you’re really doing poorly, they’ll expose that. But these aren’t the only reasons, and, I’d bet, not even the most common reasons. What about:

  • procurement people are scared suppliers won’t participate

Suppliers can be as scared of, or more scared, of an auction as a buyer. And for many reasons. They might be the incumbent with a history of overcharging. They might be a first-time invitee and have the perception it is only being run to drive down incumbent pricing. They might feel that it won’t capture the full value of their offering. And so on.

And these reasons only really apply to procurement people who probably haven’t run reverse auctions (or at least those who haven’t run a reverse auction successfully). There’s also:

  • experienced procurement people know that sometimes a reverse auction can increase prices and
  • smart procurement people know that it’s not always the right option

For a reverse auction to be successful, a number of conditions have to be right. There have to be enough suppliers willing to participate who want the business. The current pricing has to be above market average. The buyer has to be willing to award to the bidder with the lowest (weighted) bid and the suppliers have to perceive that. Either the majority of the cost has to be landed cost or the true cost needs to be easily defined as a weighted multiple of a (supplier’s) bid. If these conditions aren’t met, not only could costs not decrease, but they could increase. For example, if there were only three suppliers, in collusion, in a supplier’s market where demand exceeded supply and the current market price exceeded the price the buyer was currently paying, costs might increase substantially!

Furthermore, a truly smart buyer knows that reverse auctions aren’t always the answer, especially for strategic materials, components, or services. Not only are there some things that you can’t auction, but there are some things you shouldn’t auction, especially if your spend is high enough where you have leverage with your preferred suppliers. If you do a spend analysis and find out you’re spending 50M with your preferred temp labor supplier, it’s pretty easy to get at least 10%, if not 20%, savings if you show them the numbers and threaten to take your business elsewhere. Who’s going to give up 30M to 40M worth of business in a down economy? And if you’re primarily contracting security guards, janitorial services, and seasonal warehouse packers, should there really be a salary bell curve? In these situations, someone making above the mean is not going to be more effective than someone making below the mean.

Finally, a good procurement pro knows that there are only two technologies in the tool-kit that consistently give double digit returns on average, regardless of the economy — and those tools are spend analysis (which can enable leveraged negotiations) and decision optimization. While it’s true that a reverse auction can generate double digit savings in the right situation, that situation is not nearly as common as some vendors will have you believe. And that’s why more procurement pros aren’t running reverse auctions. They’re not always the right choice.

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The e-Auction: A Great Way to Buy Commodity Software

In a recent post here on Sourcing Innovation, we endeavored to explain how sometimes old-school works just fine with a case study from EC Sourcing Group that illustrated how a mid-size apparel retailer was able to use an old-fashioned multi-round RFX to streamline their ocean freight bid and reduce their costs by 19%, a savings significantly larger than what was expected in a time of rising costs.

Another situation where tried-and-true works just fine, also courtesy of EC Sourcing Group, is with respect to the purchase of certain classes of enterprise software that can now be considered a commodity. For example, a diversified manufacturing organization required an Enterprise-Wide Automated Travel & Expense Solution. Since this was a piece of relatively non-strategic software that carried a hefty price tag by the time license fees, maintenance fees, and, most importantly, installation fees were taken into account, and since there are a large number of providers of such solutions which have, more or less, similar features and functionality, the organization decided, with the help of their e-Sourcing provider, that the best approach was to use a multi-round e-Negotiation that began with an RFI/RFP and finished with an e-Auction.

After a detailed needs analysis that documented their current platform, functional requirements, integration requirements, and organizational processes, the e-Sourcing team constructed an RFI with over 100 qualitative questions designed to capture all of the information required to determine whether or not the provider’s platform could meet the organizations needs along with a RFP with over 50 line items designed to break out all of the relevant cost components to allow apples-to-apples comparisons and identify potential cost savings opportunities.

Each of the responses was scored by each team member against a pre-defined rating and then the suppliers was ranked automatically using the RFX software. At the end of the first phase, after the scorecards had been reviewed and analyzed, the decision was made that the top four (4) vendors who could meet the basic requirements would be invited to the auction, with the initial bids in the RFP used as starting bids. Before the auction, the bids ranged from approximately 575K to 1.425M. After the auction, the bids ranged from approximately 545K to 635K. In other words, the auction reduced the spread from approximately 850K to 90K, with one vendor reducing its bid by almost 45%! (The full case study is available on the EC Sourcing Group site.)

In the end, the organization was able to select the solution with the best price/value ratio (using a weighted auction where the ranking from the RFI and the RFP affected the final rank) at a cost that was significantly less than what they would have achieved using a straight-forward negotiation where the vendor would have charged literally as much as it thought it could get away with. The reality with enterprise software is that most vendors will try to charge as much as they think the customer will bear, which is often much more than what the software is really worth. The best way to get a good price on commodity enterprise software is to open up the sourcing process and use competition to your advantage — something that is easily done with any decent e-Negotiation suite.

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