Category Archives: RFX

The 12 Days of X-emplification: Day 1 – RFx & e-Auction

So, I bet you’re all wondering – what’s to x-emplify? I’m sure you’re saying that it’s just RFx and e-Auction … it’s been around for 10 years … and it’s pretty self explanatory. My answer to that is that you’d think it should be, but given the wide range of capabilities that exist in the various products out there, as well as the even broader range of sales pitches, I’d argue that RFx and e-Auction are still not well understood.

To help you understand what RFx and e-Auction is, isn’t, and should be – in addition to my various posts on RFx and e-Auctions, my guest contributions to the topics over on the e-Sourcing Forum [WayBackMachine] (RFx and e-Auctions), and my contributions to the wiki-papers [WayBackMachine] (RFx and e-Auctions), I’m going to point out some questions for each technology that you should be asking, as well as the answers you should be hearing, to help you cut through the sizzle and get to the steak.

e-RFx

0. Do I really need e-RFx at all?
I’ll probably take a lot of heat from everyone in the eRFX business for this, friend and foe alike, but if all you’re looking for is some basic information, or an occasional quote on office supplies, sometimes all you needis a free-form questionnaire or spreadsheet that’s mailed directly to recipients. It’s always interesting to see how suppliers respond to free-form questions — do they use marketing B.S., or do they have something useful and informative to say? Do they answer your questions honestly, or try to side-step them like your average politician or stereotypical used car salesman?

If you don’t really know much about the space, supplier, or type of product that you’re investigating, how can you ask anything but open-ended questions, anyway?

1. How much flexibility do I have in form definition?
Let’s face it – large template libraries are great ONLY if they offer the templates you need for the categories and commodities you need to source. You need to be able to create your own forms, from scratch, and have all of the form elements you need at your immediate disposal. You also need to be able to control and validate the data that gets entered into the form so that you can automatically compute scores on scorecards and identify important differences between respondents. You need more than free-form text-boxes – you need text boxes, check boxes, radio buttons, and tables (for starters), and you need the ability to define checks not only on individual elements but across elements and across rows and columns of tables.

If you’re building a weighting function, the weights should add up to a pre-specified number, like 100. If you’re asking the vendor to enter a delivery time, it should between 1 day and the maximum amount of time you can allow, like 60 days. “Next month” should not be an allowable response. If you’re sending out a survey to your internal departments to determine an order of priority between 10 sourcing projects, you should be able to enforce that each priority number between 1 and 10 is used only once. (Otherwise, they might all be ones and twos, and that won’t help you.)

Furthermore, it should be really easy to create such a form, re-organize the questions, create sub-sections (or pages), and enable or disable sections by vendors. (If you’re creating a general purpose vendor qualification form, you might not care about the “technical infrastructure” of your office supplies vendor.)

1a. Can I build advanced sourcing grids?
After 10 or more years of RFx software development, you’d think that this question would be a no-brainer. You’d be wrong. There are deep differences in the way that different eRFX products build grids, and there are deep limitations in many of them as to how big the grids can get, and how manageable/unmanageable the process may be. Every sourcing consultant worth his or her salt has recent horror stories of users unable to build the grids that they needed, period.

So don’t believe anyone who claims that”all of the sourcing vendors in this very-long list have ‘good’ RFx platforms.” They all have RFX platforms, but you will often find that there are profound differences between them and that many may not be suited to your needs.

2. Can the forms be completed by the vendors off-line?

Let’s face it – if you’re diligent about supplier and product qualification, and quality, you’ll be collecting a lot of information. Information that the individual assigned to complete the form is not likely to have at her fingertips, information that might take a long time to collect, and information that might take a long time to input. The individual should have the option of completing the form off-line, at her convenience, wherever she is – on the shop floor, on an airplane, or at the wifi-less beach.

Also, in this situation it is beneficial if the vendor can designate multiple individuals to handle multiple sections of the RFx, and if each individual can access, and complete, only their sections off-line.

3. Are the forms secure and uniquely identified?

Let’s face it, if you’re going to allow off-line completion, you want to make sure that the forms that are uploaded were actually filled out by the intending party. (Otherwise, their competition could fill out the forms and answer “no” to all the required regulation compliance questions, causing you to immediately disqualify what could be your best new vendor.) Furthermore, if your vendor doesn’t have unique identification built in, then you’re going to have to come up with your own unique identification method to insure that attachments don’t overwrite each other when a vendor uploads their form, or, even worse, that the different users who upload the forms that contain just their sections filled out do not overwrite the filled out sections completed by other users with blank data.

I’m going to tell you right now – point blank – that most RFX vendors don’t have this capability – and that they’ll probably try to skirt the issue by pointing out that “their user authentication algorithm insures that only designated supplier representatives can log in to the system and access their forms, and this will imply that only they will have access to the forms, and that since they will be uploading the forms through their login, the form is automatically identified” except they’ll use significantly more words while blowing though the well-practiced demo at breakneck speed in an attempt to woo you with their sizzle in an attempt to leave you too stunned to realize that this most of what they are saying is BS.

The answer you want to hear is:Yes. We use built in DEC/RSA 256-bit or better encryption combined with a unique secure digital id that uniquely identifies the form instance by user, by supplier, by buyer, and by original template instance id. And you want to hear this within three seconds of asking your question, delivered in a confident tone with eye-contact and no squirming. Otherwise, what the vendor has doesn’t even come close and they’re trying the above weasel-tactic.

Why is all that identification important? If it was just by supplier and form template and user id, then if the supplier serviced multiple buyers through the same on-demand platform, the form could be uploaded to a different buyer! If it was just by buyer and supplier and form template, then each user’s upload could overwrite the previous user’s upload when multiple users are filling out a form on behalf of a supplier! If it was just by buyer and user and supplier, then you wouldn’t know what template to attach it to if the user had mistakenly created two forms with the same name (but in two different projects)! And of course, if it was just by buyer, supplier representative, and form template id, then if the supplier representative was actually an employee of a 3PL working on behalf of the supplier, the data could be attached to the wrong project and exposed to other suppliers!

4. How easy is it to export the response grids for analysis? To Excel? To Access? To an OLAP analysis tool?
Automated scoring mechanisms are usually not good enough to select a vendor, and they often eliminate vendors that ought not to be eliminated. How can you write a fair scoring algorithm for a space you don’t know that well? You could be building in your own uninformed bias, or (worse) that of a vendor who has “helpfully” provided you with an RFP template! (And I think you know what I think about some of those templates!)

In fact, your analysts will want to pull the data into their own tools. These could be just about anything, from Excel models to Access databases to OLAP analysis tools. The ease with which data can be moved out of the RFx tool and into desktop analysis tools is an extremely important consideration. Sure, e-sourcing vendors will tell you that all the analysis can be done within the tool. And in some cases they’re right. But don’t limit your flexibility, because what if they’re wrong? And furthermore, what if you just don’t have enough hours in the day to learn somebody’s custom tool set? That can be a big investment in time and effort, especially if you only run one event a quarter. You could forget everything you learned, and have to re-learn it all over again each and every time. Sometimes it’s better to forget about the vendor’s tools, and just dump the data to a product you know.

e-Auction

1. Can I define my own bid type?

Let’s face it – not every bid is as simple as a price per unit – especially since you should be taking landed cost into account. Furthermore, this is more than just allowing a user to define a unit bid and a freight bid per unit – it’s also allowing the user to define a fixed processing cost per unit while the application automatically factors in an expected value for a variable fuel cost and it is defining your own adjustment that corresponds to the various utilization costs associated with different products from different vendors. For example, if you’re in food service, each type of sauce packaging implies a different amount of waste – metal cans and plastic bags and lined box-board have different “stick” factors, and the easiness of “scraping” or “draining” the contents from the package often varies by package design (such as cube vs cylinder vs tetrahedron).

2. Can the tool support complex formulas, splits, and cross-lot rankings?

Building on question one, not only do you want the be able to support bids based on complex formulas, but you also want to be able to rank bidders based on their individual bids on different lots and based on their entire package bids. A supplier might bid 100K for lot 1, 200K for lot 2, 300K for lot 3, and 400K for lot 4, but be willing to bid 900K for all four lots (equal to a 10% discount if they get everything). Without complex formulas and cross-lot rankings, the supplier couldn’t enter entire package bids or discounts, and you will not be able to capture the full value available to you through the auction.

3. Does the tool integrate with an optimization solution?

Complex formulas and cross-lot rankings are a good start to getting the lowest bids, but they do not capture all of the complexity associated with a sourcing scenario, and, thus, do not guarantee that the outcome of the auction will be an allocation that optimizes your total cost of ownership. Simply put, a dual-source strategy is preferable to a single-source strategy from a risk management perspective. A given supplier might be willing to make considerable infrastructure improvement investments if they get the business, resulting in year-over-year cost reductions that could, over a three year time-frame, significantly undercut the lowest bid another supplier is willing to give you today.

The reality is that most auction tools don’t support real-time optimization, and most of those that do support real-time “optimization” don’t support it very well, but that’s okay. The point is do they integrate with an optimization solution – since any high-value scenario on strategic categories or commodities should involve a separate optimization step where you run multiple what-if scenarios to understand what your business rules are costing you, what risks the lowest-cost solutions are exposing you to, and what the most valuable award is when you balance cost and risk. Thus, you should be able to easily import the results of the auction that you use to collect the initial bids, as well as easily create rules that guarantee the winner(s) of the auction receive a minimum amount of the award. (Remember your auction etiquette – if you don’t award to the winning supplier(s), you’ll damage your reputation. If you’re going to use auctions to collect bids for optimization, you should be willing to guarantee a minimum award to the winning suppliers. And if you properly define the bids and rankings, with an appropriate multi-source strategy, this shouldn’t be a problem. If you have a special situation where you think it might be, then use a multi-round sealed-bid auction instead of an open auction.)

the doctor On Technology RFPs: Don’t Put The Cart Before The Horse!

I’m not sure what the reason for this is, maybe it’s the “Free RFP Templates” for e-Sourcing (RFPs & e-Auctions), Supplier Management, Contract Management, and Spend Analysis brought to you by Procuri & Co., maybe it’s an over-inflated sense of technical knowledge, or maybe it’s just plain stupidity – but more and more I’m hearing about buyers looking for spend and supply management solutions that are putting together ridiculously over-specified and complex RFPs that are often eliminating all but the worst solution one could possibly imagine before the first response is even received.

The fact of the matter is that, when you are looking for a solution, there’s more than just one correct architecture, the number of features isn’t important, multiple deployment models may be satisfactory, advanced payment models and complex SLAs may not be necessary, and the processes you assume you need may not be the right processes for your business.

If the solution works on your current platform, does it really matter if its written in J2EE, C++, or Ruby on Rails (as long as it was put together properly)? Does it really matter if one solution has 800 “features” and another solution has 1000 “features” if all you need to support your processes are 200 “features”? And more importantly, do the features even address the critical functions you need to get the most out of the solutions? Although on-demand SaaS has advantages over ASP, and ASP has advantages over localized deployments from TCO perspectives, from a security and control perspective, assuming you have a crack IT team in house that knows what they’re doing, arguments can always be made in the other direction. (However, most non-technical companies don’t have crack IT teams, regardless of what they think, and that’s why I’m such a proponent of the on-demand SaaS model.) Not everyone uses the complex payment models pioneered by Oracle and SAP – some vendors use very simple pay-as-you-go models – especially on-demand vendors who charge you one fixed fee a month for the license, including maintenance, and one variable fee a month for how many days of consulting you utilize, easily calculated as number of days * resource rate. Finally, have you taken the time to evaluate your current processes from an efficiency and effectiveness standpoint? Maybe they are not optimal – in fact, if you haven’t reviewed them lately – chances are they are not optimal and a good time to change them might be upon implementation of a new system that can support the processes you should have, versus the processes you have today.

Thus, when constructing your RFP, if you’re not an expert in technology, and unless you’re an IT company – you’re not, don’t pretend you are. If you’re not an expert in what today’s solutions can do – and unless you’ve spent a significant amount of time researching large and small vendors alike – you’re not, don’t assume feature function lists, and definitely don’t assume that one vendor’s template is the best feature function list that’s out there. And definitely don’t use a template provided by a vendor being invited – that template was written to make them look good from a comparison perspective with their primary competition – which may not have any correlation to the solution you actually need.

Leave the technical and feature specifications open-ended. Instead of describing a proposed solution, describe the problems you’re having and the problems that you expect the solution to solve and let the vendors describe how their solution could meet your needs. And if you’re worried about the responses being too apples-to-oranges to make a decision, do a two-stage RFP. Issue a preliminary, open, RFP that describes the type of solution you’re looking for, the problems you want it to solve, and asks the vendors to describe how their solution meets this need and what key functions it offers and tell them that the best submissions will be invited back for round two, which will be closed.

Review the submissions to the initial RFP, invite clarifications and demonstrations (on the grounds that price and terms will not be discussed), flesh out your requirements, and then issue a closed RFQ with more detail on any architecture or deployment restrictions, the core functions you desire, your minimum SLA requirements, and your criteria for scoring the responses and selecting a solution. (For example, saying you can’t do on-premise Linux because you don’t have the tech resources is good, unlike saying that only on-premise Windows works when in fact you could consider on-demand with Windows Thick client. Saying you need a centralized contract repository as part of your CM solution, once you understand what that is, is fine, whereas saying you want a repository that uses Oracle 10.X, because that’s what you have a license for, when in fact the solution might come with a built in database or license for the database it uses, is overly restrictive.)

If you’re smart about the RFP process, then the solution you end up with will surprise you in its effectiveness and efficiency. However, if you just follow the herd, then you might find that you add to the statistics that say at least 70% of all IT-based projects are at least partial failures, because the system will likely not live up to your expectations of it. I guess what I’m saying is, don’t be an RFP-lemming. (As a reader of this blog, I know you’re smarter than that – but I need you to help spread the word!)

Supplier Enablement

Last month, the ISM awarded a number of individuals and organizations the R. Gene Richter Award for Leadership and Innovation in Supply Management. The recipients were primarily organizations that had demonstrated massive improvements in their sourcing and procurement functions which came about through concentrated improvement efforts. These improvements were the direct result of the adoption and consistent implementation of best practices across the sourcing and procurement functions in the organization. This week we are discussing the best practices that helped one or more of the recipients transform their organizations and win these coveted awards.

Today we are going to discuss how supplier enablement can significantly enhance your sourcing function, as it did for Rockwell Collins, as described in the article “The Next Step” in the latest issue of Inside Supply Management.

In 2005, Rockwell Collins launched an eRFQ/APO (electronic Request For Quote / Automated Purchase Order) system that extended the initial supplier portal that it released in 2003, SupplyCollins.com. This site is the primary communication tool between Rockwell Collins and its suppliers, providing a single process and methodology of doing business that is understood by all parties involved.

The system also supports Total Cost of Ownership (TCO) analysis, that allows the system to automatically select the winners of the eRFQ and generate APOs when the response deadline occurs. The system automates tactical pieces of procurement and frees up Rockwell Collin’s staff to concentrate on strategic issues and spend more time working with engineering and supply.

The system provided the following benefits to Rockwell Collins:

  • the volume of automated transactions has increased to 70%,
  • nearly 90% of direct materials are purchased through the system,
  • supplier visits have increased eightfold in a 2 year period, from 5,000 in January 2004 to 40,000 in January 2006,
  • over 1,400 suppliers use the system, and
  • the application has generated more than 70,000 eRFQs and more than 50,000 purchase orders.

RFX Defined

Yesterday we defined a basic strategic sourcing process, indicated there were five critical process-driven phases that may be greatly enhanced by software solutions, and indicated that we would spend one theday discussing each of these phases this week.  Yesterday we discussed Spend Management and Spend Analysis.  Today we are going to discuss the RFX process.

RFX, one of the most generic and overloaded acronyms in the sourcing marketplace today, usually stands for Request For Information (RFI), Request For Proposal (RFP), and / or Request For Quote (RFQ).

RFIs are generally used to identify new potential suppliers or determine if current suppliers are willing or able to supply a new product or service, RFPs are generally issued to interested suppliers who have been pre-qualified as a potential source of a product or service for additional details on the product or service, their processes, and value, and RFQs are generally issued to collect (initial) bids once a pool of qualified suppliers has been determined.

RFX technologies come with many benefits above and beyond simple process automation and sourcing cycle time reductions.  Most solutions will have sophisticated workflow management capabilities, a centralized repository for all project information, best practice templates, survey capabilities, and standardized processes you can base your sourcing process on.

Furthermore, the more innovative technologies will come with supplier portals that will engage your suppliers in the selection process.  Not only will they be able to enter their information directly, but they will be able to offer suggestions and collaborate with you on process improvements and innovative ideas to streamline new product innovation.

When it comes to innovation, RFX is now one of the least innovative technologies on the market, but still one of the most important.  The more time you have to focus on strategic planning versus tactical operations, the more likely you are to spot innovative solutions that will save you bushels of money and increase the overall value of your awards.  RFX was one of the big breakthroughs in strategic sourcing automation – and so was the further introduction of collaborative supplier portals.  The next major innovation will be the integration of business intelligence that will let you discern supplier viability and quality before your first interaction, so you do not waste time screening suppliers already known to be inappropriate to your line of business.

There are a large number of RFX suppliers on the marketplace today, ranging from standalone solutions to tightly integrated solutions like those offered by Ariba, Emptoris, and Iasta.  See the growing company list at for some examples and starting points.