Category Archives: RFX

7 Sourcing Secrets More Than 2 People Should Know

A recent article over on Cracked listed “7 Secrets Only Two Living People Know” (for some reason … that the doctor must admit he doesn’t understand in a few of the cases). While entertaining, it did cause me to ask why there are so many truths in sourcing that most people still don’t seem to get. Since some days I feel like only 2 people know the following, I decided I should do my own post on 7 sourcing secrets more than 2 people should know. Because you really, really, really should know the following sourcing “secrets”. After all, they’re truths, even if no one’s bothering to tell you. So without further ado, here they are:

1. Spend Analysis is flexible Data Analysis, not canned reports on a data warehouse populated via automated classification

Real spend analysis is the ability to dive into your data and find out not just where your true spend is higher than it should be, but why. This requires you to have the ability to slice, dice, and cube your data on any dimension you can think of, because you’re never going to know where the losses are until you find them. (After all, if you knew where your holes were, wouldn’t you have plugged them already?) Canned reports on a static data warehouse can only tell you how fixes you’ve already implemented are working, not where the holes are. Furthermore, “automated classification” just doesn’t work. Any good consultant worth his salt can load your data into a real data analysis product and find two dozen mistakes in twelve minutes. You need the ability to define and redefine mapping rules on the fly as all automated classification can do is fix previously identified mistakes. It can’t identify new ones. Software isn’t intelligent. People are.

2. e-RFX is electronic support for the full information and quote gathering cycle, not just bid collection

If all your e-RFX does is allow you to collect bids, it’s not e-RFX. It’s e-RFQ, and a poor e-RFQ at that. It should allow you to create questionnaires, surveys, and entire RFX packages with closed and open-ended questions, allow you to compare responses side by side, and allow you to collect not only all of the pricing, but all of the discounts, rebates, and promotions the supplier offers. It should help you manage the process, guide you through it, and support data import and export in open formats so that you can also use analysis, optimization, and contract management tools.

3. A Reverse Auction is simply an online auction event, it’s not a substitute for proper sourcing project management

I follow the space closely and not a month goes by where I don’t see an article on how Company XYZ is now refusing to participate in online auctions. When you dig down, this is because they had a horrible experience. When you dig deeper still, you find out it is typically either because Company ABC simply threw an auction tool at the supplier and told they had to bid through the tool or lose all their business or Company ABC threw up an auction tool and said they’d award to the lowest bidder but ended up going with a different supplier, usually the incumbent, after the auction closed.

I find this appalling, because e-Auctions, like e-RFX, are not only a great time saver, but a great way to bring parties together from around the globe and allow them to participate in an e-Sourcing event that, when run right, is more transparent, educational, and profitable for all parties concerned than traditional methods of sourcing where you get bids by phone and fax until you find three bids you like and then meet in a room to “negotiate” until a deal is struck with a winner. (And I use the term “negotiate” loosely because old style purchasing methods usually boil down to the party with the most leverage beating up the party with the least leverage.) But this is only true if the event is run right. This takes proper project planning and management. Tools can facilitate the process, but they can’t replace it.

4. Decision Optimization is for everyone, not just for math geeks

I’ll admit this is my own personal bandwagon, but having seen savings of over 40% and ROIs of over 400 on a number of projects, and average savings in the 10% to 20% range and average ROIs of 5X to 10X or more, I think I have a good reason for riding it. Despite the fact that true self-service decision optimization for sourcing has now been around for almost a decade, it’s still the “black sheep” that almost no one uses — and it’s a real shame because now is the time you need it most. Furthermore, the new tools coming out of the leading providers are a lot more usable than the first generation tools and can be easily used by any college graduate who can build a cost model and specify some business constraints. In other words, if you have the pre-requisites for strategic sourcing, you can use these tools to save time, to save money, and make better, more informed, decisions.

5. Contract Management is just a new name for document management with integrated monitoring, it’s not a replacement for contract managers

Lately I’ve noticed how contract management is coming into vogue. And while that’s a good thing, it’s important to understand what contract management is and isn’t because it seems that some vendors, and some publications, are promoting the new offerings as the latest and greatest tools to solve all your contract woes when the reality is that these tools are nothing more than document management tools with monitors and alerts. I won’t deny the importance of having a good contract management tool that can monitor expiration dates, contract pricing, and, most importantly, invoiced pricing against contracted rates, but these tools, even if they contain sophisticated contract creation capabilities, can’t replace a contract expert, a master negotiator, or a good spend analysis tool that can uncover devious work-arounds by less-than-reputable vendors looking for a way to make back that buck they gave up in negotiations. (For example, I’ve talked to a number of consultants who told me how they found that some office supply management vendors regularly changed SKUs to bill you twice as much for that pen as it’s really worth.)

6. e-Procurement is tactical, and not a substitute for e-Sourcing

There’s still a lot of confusion in the marketplace between what is e-Procurement (and how it relates to P2P, EIPP, and the other new acronyms old players are coining to differentiate their new, streamlined, offering) and what is e-Sourcing, even though it should be fairly clear cut (as I attempted to outline in this post on why it’s sourcing and procurement). A few of the e-Procurement vendors are even claiming that you don’t need sourcing at all if you use the wisdom of crowds (which is not the case because there’s a big difference between a great deal on a commodity office supply and a great deal on raw cocoa or custom circuit boards, which are not commodities). Sourcing is the strategic part of the purchasing cycle, procurement is the tactical. You need both, and one is not a substitute for the other.

7. It’s not what you know, it’s what you can learn

Plain and simple,

  • it doesn’t matter if you’ve been doing it that way for 20 years if it’s not optimal,
  • shift happens, and
  • whatever happens, the world of tomorrow will not be the world of today.

You have to keep learning. That’s why this blog is here.

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Buying Time!

Originally aired December 1, 2007..

To the tune of Closing Time by Semisonic.

Buying time – time for you to go out, go out and meet the day
Buying time – turn the lights on your suppliers near and far away
Buying time – one month left on the contract, so finish your auction or quote
Buying time – you don’t have to decide if you call a vote

You know who you want to win the bid
You know who you want to win the bid
You know who you want to win the bid
win the bid …

Buying time – time for you to rank the responses you get from the crowd
Buying time – your work won’t be finished ’til your team-mates and bosses are cowed
So gather up your courage, and move it to completion – I hope you still have a friend
Buying time – every new beginning comes from some other beginning’s end

Yeah, You know who you want to win the bid
You know who you want to win the bid
You know who you want to win the bid
win the bid…

Buying time – time for you to go back to the market your goods come from…

You know who you want to win the bid
You know who you want to win the bid
You know who you want to win the bid
win the bid…

Buying time – every new beginning comes from some other beginning’s end…

Be sure to check out the Top Categories to Source Now Webinar coming up this Tuesday (June 2) at 1:00 pm ET and Pat Furey’s post on Supply Excellence yesterday, because the good deals you can get now might not last much longer!

Fine-Tune Your RFPs for Streamlined Performance (Software Acquisition Insider Tips VII)

A recent article over on Supply Management . com on “going faster” pointed out many of the problems with RFXs that cause unnecessary process delays. Fixing these problems will enable your RFX process, which you now know how to construct in an unbiased fashion, to flow smoother and faster.

  1. Poor Scope
    The scope is not clearly defined at the start of many RFP processes. “A solution to automate our purchasing” is extremely vague as is “50,000 boxes”, which a quick trip to cBoxBid will quickly point out. (Dimensions? Style? Weight/Flute? Glue Tab? Printing? Color? etc.) The scope needs to cleary define what is required (automation of purchase order creation, invoice collection, and e-payments or 12″*12″*8″ boxes that can hold at least 45 lbs) and the desired outcomes (automated tactical processes with m-way matching and manual review only required on discrepancies and purchases over administrator defined thresholds or 5,000 boxes per shipment with 21 days notice).
  2. Lack of a Performance Regime
    The long-term success of a major contract will depend on a mix of “hard contractual” and “soft behavioural” factors. It is imperative to define success via a comprehensive performance regime with a simple hierarchy of performance measures and targets, and a mechanism for rewarding good service and deterring underperformance.
  3. No Team Empowerment
    Like every other sourcing and procurement activity, a successful RFX (process) requires a dedicated and fully supported team. A core team, authorized to make the necessary decisions, is required throughout the process and beyond to ensure consistency and clarity with the bidders.
  4. The Contract is an Afterthought
    The RFX should be presented in a format that matches the product or service being requested and should fully explain the selection process, the evaluation criteria, the rules of engagement, the delivery schedule, and the terms and conditions. In other words, the contract (template), which should clearly specify what is and is not negotiable, should be drafted up front and presented to all participants. Otherwise, you might work through a long, laborious RFX process only to find out that the winning bidder(s) can not, or will not, agree to your terms and have to go back to the drawing board.
  5. The Process is Not Managed
    The largest risk in any RFX process is a misunderstanding, and the sad thing is that this is very likely if sufficient information is not made available to the bidders and the process is not managed. It’s important to manage the process and communicate with the bidders at each step to make sure they have received all of the materials, understand all of the requirements, and have all of the information they need to craft their responses. The process should include regular briefings, review meetings, and question and answer sessions to insure that it flows smoothly.

Tips on Drafting a Truly Unbiased RFP (Software Acquisition Insider Tips VI)

It’s not hard to draft an unbiased RFP, even though you might think otherwise when you consider the truly large numbers of RFPs that hit the wire every day. Many of them are biased toward a specific provider. The fact of the matter is that it doesn’t take much to bias an RFP, and it often happens without the intent of the author. But it doesn’t have to happen to you. Here are some tips to keep your RFPs unbiased.

  • Don’t use a (free) RFP template
    I’ve told you again and again. These are created by vendors to achieve one goal, and one goal only: to make their product, and only their product, look good.
  • Ignore the feature lists
    This is a free RFP template favorite; namely, features selected for their “differentiating” capability, that you’ll never use. It’s not the features that matter, it’s the functions. Specifically, the functions you need the product to perform for you.
  • Don’t use an interested party.
    That means no vendors, no solution providers who’ll be bidding on the business, no consultancies with partnerships or known relationships with vendors or solution providers who’ll be bidding on the business, and no one with an obvious agenda that’s not yours.
  • Describe the process you need to automate or support in your own words.
    The minute you use a vendor’s terminology is the minute you give them the edge to exploit the RFP and, in the public sector, ramrod the solution down your throat, whether or not it’s right for you.
  • Describe the goal state, not the current state
    You get what you ask for, and if you ask for a solution that supports the current state, which you presumably want to improve, you’re not going to end up with much of an improvement.
  • You’re probably not a technology expert, so don’t put technology in the RFP.
    Don’t make the error of assuming that you know what technology would be best.
    If it’s software you’re buying, be wary of opinions from your IT department.
    IT people are most likely not
    software developers, so they have at best a limited understanding
    of the technologies that software developers use. Even software developers tend
    to know only the technologies with which they are currently working, and they are
    often deeply biased toward a particular technology, for no rational reason. You are looking for a solution, not
    a technology. So spend your time focusing on the solution and what it does for you.
  • Make sure you control your data.
    If it’s software you’re buying, then no matter what solution you choose,
    make sure part of your RFP includes a requirement to get
    the data that you pumped
    into the product, back out of the product, easily and quickly, in a format that’s understandable to you (not
    XML or a proprietary database file, or some other idiosyncratic format that will cause pain — rather, an ordinary flat file,
    or set of related flat files). Your relationship with the vendor is not likely to be “until death do us part.” The
    software world moves extremely quickly, and a much better solution could present
    itself down the road. You want the ability to jump on it without a backwards glance.
  • Unbundle all the extras.
    Vendors will almost always muddy the water by “including” A with B, proposing some special deal that’s available
    for a limited time only, and so on. Make sure that your RFP unbundles maintenance from license fees or purchase price; clearly spells out the cost to upgrade; and clearly disambiguates services from product.
  • Demand multiple sources for services.
    Just because you’ve committed to Oracle ERP, for example, doesn’t mean that you have to use Oracle resources to
    implement the system. The same is true for other software products, and for many other commodities as well.
    The cost of services can dwarf the cost of the product; and the best deal for services is achievable
    when there are multiple services providers. When vendors are bundling services, and no matter who you choose it’s a one-stop shop,
    you will be helpless the moment you sign the deal. Would you buy a car that could only be serviced at one
    dealership?

A Great Guide to Outsourcing Risk Management, Part I

Not that long ago, SourcingMag.com published a great six part series, authored by Alsbridge on “managing risk in outsourcing” that covered a best-practice approach to reducing your outsourcing risk that is a must-read for anyone considering outsourcing as part of their procurement function, even if (and especially if) it is just the tactical part. Although the article, and the series, focusses primarily on the aspects of IT outsourcing, the reality is that tactical improvements primarily originate from automation and better systems, so you really need to understand the IT trade-offs before you can make an educated and informed decision.

It’s also important to remember that the reality is that even though there is little to be saved on tactical process automation or improvement relative to what can be saved from a well executed strategic sourcing event on a high-dollar category, the reality is that a botched automation of your tactical procurement processes, especially as part of an outsourcing project, can cost you dearly as your team will have to spend all their time fixing the mess … and the opportunity cost of doing such is phenomenal. Moreover, if your systems are not aligned, you’ll never capture all of the savings that your expert sourcerors negotiate. (There’s a reason that most companies capture less than 50% of negotiated cost savings … and that reason is inadequate systems and poor monitoring.) Thus, before you outsource any aspect of your procurement operation, which you should consider doing if an outsourcing provider can offer you better technologies and processes at a lower cost of operation, it’s important that you understand what you are going to outsource, how you’re going to get a return on your investment, and how you’re going to manage the outsourcing project to make sure the savings materialize. In other words, before you embark on a procurement outsourcing project, you need a good strategy.

Where Do You Start?

Start by identifying all of the potential failure points in your plan, determining the probability of failure and the associated cost if a failure occurs, and then develop risk mitigating plans for those risks that have more than a slight chance of occurrence or a high recovery cost. Then you can move on to your search for a service provider partner.

So How Do You Select The Right Service Provider?

Do some research, starting with the industry leading blogs (like Sourcing Innovation) and the free resource sites (like the SI Resource Site) available to you to identify potential providers. Then embark upon an RFX project to help you identify the provider who can meet your needs at the best price point.

Make sure the RFP completely spells out what you want to outsource; the processes you want followed; the people, process, and system interactions you desire; the change management processes that you follow; the frequency with which you inspect system updates and innovation; current process cycle times; and the cycle-time and cost reductions you are expecting; the service levels you require; and the degree of year-over-year improvements that are expected from your service provider. It’s important that the RFP spells out everything the vendor needs to know, otherwise, they won’t be able to put their best foot forward and will have difficulty being successful. It’s not up to them to fret the details, it’s up to you. Penalty clause or not, it’s still your mess to clean up if your vendors don’t get paid the right amount on time or, even worse, they all get overpaid by 10% and you have to fight for refunds and it’s still your liability if financial statements are wrong because the provider screwed up. If you can prove complete ignorance and best-effort to insure financial statement accuracy, you might escape jail, but that will be of little consolation if the resulting fines bankrupt your company and you’re out on your ass without a job. The simple fact of the matter is that the more detail you can provide in your RFP, the better a potential partner can determine whether or not they can provide the solution you need and how much it will likely cost to do so. And if you don’t know how to put together a good RFP, you can always Get Help from an expert. Once the RFPs are in, you start with the evaluation, which is the subject of Part II of our series.