Why Bidding Flexibility Is Important to e-Auction Success

Regardless of what you want to call it — expressive bidding, lotting, market baskets, informed sourcing, etc. — the ability to let a supplier bid the way they can give you the best price is very important to e-Auction success. If all you can support is simple auctions on an item by item basis, and quotes on an item by item basis, you are not going to get the best deal.

This is rather easily illustrated. For example, let’s say your business is clone computer assembly for mid-sized businesses who don’t want the Dell or HP premium. Let’s also say that you buy six different components for these computer assemblies: cases, power supplies, motherboards (with on-board everything to keep it simple), memory, hard drives, and cable packs.

If you are forcing a supplier into separate bids by item, and the level of detail they can quote is price per unit, shipping per unit, and extended warranty per unit, you’re probably going to end up with quotes looking like this:

Supplier 1 Supplier 2 Supplier 3
Component Unit Freight EW Unit Freight EW Unit Freight EW
Case 20 5 1 22 4 1 18 6 0
Power Supply 40 3 6 36 4 3 38 4 2
Motherboard 199 5 24 195 5 19 189 5 30
Paired Memory Pack 49 2 4 47 3 6 51 3 4
Hard Drive 78 4 12 74 3 8 81 4 7
Cable Pack 22 4 0 24 3 1 19 5 0
Total 49 2 4 305 12 30 37 11 0
Grand Total 450

Not bad for a clone server, but if you bid out the basket and allow the supplier to bid on just the components they want and do so as a bundle, you might find that you get this result:

Case Power
Supply		 Mother-board Memory Hard
Drive		 Cables Freight Warranty
S-1 B-1   19   38   20   8   5
S-1 B-2   45   71   5   8
S-2 B-1   20   33   6   2
S-2 B-2   195   14   5   10
S-3 B-1   45   72   5   9
S-3 B-2   185   14   7   30
Grand Total 414

An 8% savings by allowing a supplier to bundle bids according to their operational efficiencies!

Get it now?

marketdojo – A Dojo Where You Can Plan your Own Path

In our last post, we introduced you to marketdojo, 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.

In yesterday’s post, we described their basic marketdojo product which consists of an RFX and e-Auction offering (which supports multiple RFX types and Auctions). Today we are going to discuss their categorydojo product, which is one of the two real differentiators between them and the other players targeting the low-end of the e-Sourcing market (in an effort to bring smaller companies out of the Purchasing Dark Ages where some still remain).

A lot of consulting firms have been doing the category analysis that categorydojo has been doing for years, and a few companies have even built simple opportunity analysis tools to help you figure out how what opportunities you should be chasing, but the doctor has yet to see any tool that is as clean, streamlined, and useable by an average buyer without a lot of training or consultation. This is one of the two real differentiators that marketdojo has built and one of the two features that actually impressed the doctor, which is not easy to do if you are yet another e-Sourcing or e-Procurement provider considering the dozens upon dozens of tools he’s seen over the last fifteen years. Basic suites are commodities now, and the most basic suites are free.

Once you’ve activated marketdojo, giving categorydojo a spin is as simple as going to categorydojo, clicking on the Dashboard link at the top of the page, and activating it.

Once it’s going, you create a spend portfolio (by selecting the Create Portfolio option) where you define your top categories, and then go through a wizard-driven Q&A about each category to help the expert system underneath properly classify and rate your category. Category creation can be as simple as category name, currency, average annual spend, and a notation on whether or not the spend is subject to EU Procurement Directives (if you are in the public sector). Then you define subcategories, their component spend, expected spend trends, and contract term. Then you define your perception of market conditions and bid complexity and you’re off to the races. Once you’re done, the tool presents you with a recommended sourcing strategy, which in the marketdojo suite, is initial RFI (because it’s not ready for a market event or a market event is not expected to be successful at this time), RFP (because it’s not auction appropriate), RFQ and standard e-Auction, or RFQ and Reverse Japanese Auction — and charts it on a quadrant graph relative to your other categories.

Then, once you have defined a set of categories, you can deep dive in and see the relative spend vs complexity for each category, the time vs. return, and most importantly, the power balance for each category and what it means to your organization and the expected savings. The founders, with a long history in sourcing, built up a knowledge base on different categories and expected savings targets and built this in to the evaluation from day one. Then, upon product launch, they made sure that categorydojo was integrated with marketdojo so a buyer could push an award back after an event was run so the award, and the savings, could be evaluated against the expected savings. This result was used to tune the models over time to the point that a buyer can have confidence that, at least 9 times out of 10, the available savings is within the range predicted by the tool (if the market conditions have been accurately captured and the suggested strategic approach is taken). I’ve seen the reports (which, by the way, do require a paid license), and, for every category I’m familiar with, the range is a realistic savings range for a company that hasn’t properly sourced that category before.

Finally, once you have all of the spend categories defined, and have worked your way through the reports, the tool lets you prioritize the categories so that you can build an effective sourcing plan for the year.

The tool is well done and easy enough for any buyer to use without a £5K a day senior consultant from a Big 6 consultancy! (Which means that the tool, which only costs £1000 per user per year, pays for itself as soon as you use it because each category analysis from a Big 6 will cost you at least £5000, and that buys an unlimited one user license of marketdojo for a month, which will help you realize your organization’s savings potential!)

If you’re at the lower end of the mid-market and in need of a (better) e-Sourcing tool, I would strongly suggest that you check the marketdojo out. Even though they have a few clients in the higher end of the mid-market, they are really designed for the low-end, and they fit very nicely there.

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.

 

If I Succeed in Destroying Dashboards and Razing Report Writers, What Next?

In yesterday’s post, where I responded to the smart alecks, I noted that, once dashboards are destroyed and report writers are razed, there was about a half-dozen next logical steps that could be taken to improve today’s spend analysis solutions, even if that solution was BIQ.

Should cost modelling, award optimization based on historical data and business rules, and federation across related data sets for deeper dives are pretty obvious. Are there somewhat less obvious advancements we should also be thinking of?

Of course. One rung up the ladder, three of them are:

Predictive Modelling

Once you have should-cost modelling, the next logical step is predictive modelling. Use historical data to extract pricing trends and predict likely future prices for the commodity. Use this to determine not only the best time to (re) source the category as well as using deep-dive analysis to determine the best strategy.

Optimize Supplier Relationships

Once you have optimized all of the awards based on historical data and business rules, you also have the optimal allocation by supplier. Once you have the optimized set of awards for each supplier, you can optimize the re-order schedule, shipping arrangements, and even production and sourcing schedules on behalf of the suppliers and take costs out one level down in the supplier chain. Helping your suppliers help you goes a long way to building good supplier relationships and increasing supplier performance.

Simultaneous Drill Across Multiple Data Sets

Once you have true federation, you want to split the screen and update the views to only contain the relevant data in each data set as you drill down through the data. Going back to our previous example, you start in the Payment cube drilling into the goods receipts associated with the wonky widgets, then switch to the Order History cube to find the initial requisitions, but when you drill on the user in the second cube, the first cube is updated to contain only those goods receipts associated with the user. The user can drill through either cube to find the data she wants, whichever is easiest, and both cubes update. She doesn’t have to go back and forth.

These are just a few more things that can be done, and all would simplify the life of an analyst. More to come at a later time but first, this time I’m going to insist that you tell me what you would do. :-;

If I Succeeded in Destroying Dashboards, How Else Would I Improve Spend Analysis.

The smart alecks are correct — technically destroying dashboards is not adding anything to spend analysis so I didn’t actually provide a way to improve spend analysis technology, just the results you get from using it.

So if I succeeded and dashboards bit the dust, what would I do? (Besides banning integration points for report writers for all OLAP-based spend analysis products?*) Good question. Especially since there’s about a half dozen logical next steps.

Three things that would be useful if you had a true spend analysis product like Opera’s BIQ would be to:

  • Integrate Easy Should-Cost Modelling CapabilityThis way you can define a cost breakdown for a product or service you are looking to source and have the tool automatically generate an expected cost based upon current data, as well as a price-range, with confidence, based upon low, average, and high prices paid for the raw materials, energy, labour, etc. (provided that the should-cost model permitted base-cost definitions for any cost components you weren’t buying that were bought entirely by your supplier)
  • Optimized Awards Based on Historical Data and Business RulesYou don’t have to send out an RFX to get base market pricing if you are already buying a product, it’s in your transaction store. Nor do you have to run a complex event to determine the lowest cost providers for a market basket. Moreover, if you are buying commodity products and services with list prices, and all your suppliers do is give you a discount of X% for a guaranteed award, you don’t really need optimization to determine the lowest cost as it’s just a simple formula against current pricing. And if your only business rule is 2 or 3 way split, it’s just the 2 or 3 lowest cost suppliers with the appropriate risk mitigation. In this situation, it would be easy for spend analysis tools to build in some simple optimization capability to tell you your lowest cost buy, and if it’s close to your should-cost model, you can just cut a contract without going through a time-consuming sourcing event.
  • True Federation across Related Data SetsMost spend analysis tools are only capable of working on one cube built on one data classification at a time. This means that even though a user can pick the drill dimension order, only one set of data can be viewed at one time. But sometimes you want to drill into greater detail (such as who requisitioned all those widgets from the wonky supplier), and that’s not in the transaction file — so you need another cube with more detail on the invoice (history). Then you drill in on the augmented AP (cube) data until you get to the invoices associated with the supplier, switch over to the new cube and drill down to the line items of interest and retrieve the requisitioners. Another situation is where you are getting a lot of warranty returns, and you want to figure out what batches the returned items are in so you can determine whether or not the batches were bad and it will be cheaper to do a mass replacement (by just putting out a recall) than dealing with one breakdown at a time. In this case, you need to drill into the warranty cube and then branch over into the invoice cube to get the batch numbers associated with the appropriate goods receipts that are associated with the invoice.

These are just a few things that can be done, and all would simplify the life of an analyst. More to come at a later time but first, what would you do?

* If you don’t know why, you don’t know your spend analysis product limitations!