Category Archives: Auctions

Supply Management Should Drive M&A Evaluations

But don’t look to e-Auctions to save the day. As per SI’s recent post, the entanglements of e-Auctions could get in the way.

Last fall, e-Sourcing Forum published a two-part series on M&A and e-Auctions, stating that what’s old may be new again, which claimed that e-Auctions could be a perfect tool for procurement in post M&A scenarios as they provide a competitive advantage for industries frequently involved in M&A activities. They can, if the situation is right, or they can be as useful as a trap door in a life-boat. There is no one-size fits all sourcing tool, and if you get it in your head to force-fit a sourcing tool to your situation, e-Auctions should be on the bottom of your list because they can bust as bad as they boom.

The rationale presented for their selection as the potential perfect e-Sourcing tool in the post-merger environment is based on the fact that e-Auctions can:

  • put negotiations directly into the hands of the suppliers,
  • create fair competition between suppliers by creating a level playing field,
  • provide suppliers with more direct/immediate feedback on their position in the market, and
  • drive “truer” market pricing and justifications for establishing baselines post-merger.

This is all true provided that:

  • the majority of suppliers, including those that are currently preferred, are willing to negotiate through the auction,
  • the buyer designs the auction in a way that is fair to all suppliers,
  • the auction platform can support real-time feedback to all suppliers taking part in the auction, and
  • the suppliers don’t collude and don’t make unrealistic bids in an effort to win the auction, hoping to make up the unsustainable loss either in volume or add-on fees or future business.

In order for auctions to work, especially in a post-M&A scenario, a number of conditions need to hold true.

  • supply has to at least equal, and preferably exceed, demand as per our post on the entanglements of e-Auctions,
  • there has to be enough qualified suppliers to make the auction competitive — if only two suppliers can supply the custom product or service you need, the auction ain’t gonna do squat except offend suppliers who should be your strategic partners,
  • there has to be enough volume to make the event worthwhile — saving 1% on 100,000 is not going to be worth the time and effort, and, most importantly,
  • there has to be enough categories that meet these requirements that are available to source in the first year, as it will typically be the case that both companies have contracts in place for a large number of their high-spend or high-volume categories, and, furthermore,
  • these categories have to be significantly larger than they were before the merger — if the merger does not yield enough common categories that are available to source at volumes that are high enough to be more attractive to the supply base than each company would source on its own, then the merger / acquisition is not going to yield any sourcing quick wins by way of e-Auction.

If neither company has a lot of spend under contract, neither company has a large number of complex products or services that can only be sourced from one or two suppliers, and both companies source a large number of overlapping products and services, then, if the market is ripe, the supply base is willing, and the buying team can design and deliver a fair and professional e-Auction, then e-Auctions can drive M&A success. But if the opposite is true, all e-Auctions will do is get the M&A team into trouble.

As with every sourcing exercise, it must start with a situational, and spend, analysis to see what’s what.

The Entanglements of e-Auctions

Not too long ago, Procurement Leaders (PL) published a piece on “the pitfalls of procurement auctions” that did a good job of exposing some of the traps in Procurement Auctions. It is worth a read, but it missed a few entanglements that also need to be understood in order to determine when, where, and why an auction should, or should not, be used. In this post, after reviewing the traps of the PL piece, we will discuss some of those.

According to the piece, there are four main traps of Procurement Auctions:

  • lack of auction knowledge
    The author notes that many business have a pre-conceived notion of what an auction is, even though the concept is very broad and flexible and can be adapted to your business needs. Modern e-Auction platforms support upwards of ten types of auctions, many of which are described in the e-Auction WikiPaper the doctor co-authored years ago.
  • lack of an appropriate platform
    As a result of lack of knowledge, many Procurement teams will lock in with an e-Auction provider before understanding what they really need and settle on a platform that, while great, isn’t right for them.
  • lack of supplier interest
    Auctions don’t work unless you have enough suppliers who can meet your needs who are seriously interested in winning your business. This will generally only be the case only if there are multiple suppliers who can supply the good or service you need (that are not locked in non-compete agreements with your competition that would exclude you) that see your auction process as fair, transparent, and efficient.
  • lack of planning
    As noted above, there is no auction type or platform that is “one-size-fits-all” so you need to select an approach that is flexible and you need it to be repeatable when you need to run the auction on the category, or a similar category, again in the future.

These are big traps, but not the only ones. Four more traps include:

  • lack of market knowledge
    Auctions generally work well when supply exceeds demand and generally work poorly when demand exceeds supply. A buyer who runs an auction at the wrong time will generally not get good results.
  • lack of supply market knowledge
    Just because a supplier is interested in bidding doesn’t mean it should be allowed to bid. Only qualified suppliers that have been confirmed to have the necessary capabilities should be allowed to bid. Otherwise, an unqualified supplier could win the business or suppliers, seemingly separate but in league, could collude to keep prices high. (Do you really know what goes on overseas?)
  • lack of e-Sourcing expertise
    Auction’s don’t have to be stand-alone events. They can succeed RFxs and they can preceed decision optimization. They can include real-time optimization and rules for sole-source awards, split-awards, baskets, etc. The right knowledge can not only lead to the selection of the right type of auction, but an auction that complements the overall sourcing cycle.
  • lack of perceived trust
    As per this article on the potential pitfalls of e-Auctions over on the MIT Sloan Management Review, suppliers often see open-bid auctions negatively. They believe that the buyer is using an open-bid auction to unfairly force prices down through the inclusion of unqualified suppliers or fake bids.

Don’t be afraid of e-Auctions – they work great when used appropriately. Just don’t rush in until you do your planning.

MarketMaker4: The Mid-Market’s Market Making Mezzanine

Some of you might say the e-Sourcing space is too crowded. And that certainly was the case in the mid-zeroes — platforms here, platforms there, platforms platforms everywhere. But then came the acquisition frenzy where mid-sized players swallowed smaller players and start-ups before getting swallowed up in turn by the dominant players who, in the last couple of years, themselves were swallowed up by the massive enterprise software providers. As a result, there is an opportunity, especially in the NA (North American) market for a couple of new players – provided, of course, that such players bring new and innovative solutions to the table (that address the needs of a considerable market segment).

As a result, even though the EU (European Union) vendors are starting to enter the sourcing market in a big(ger) way in NA, there is still an opportunity for someone new if they go about it the right way. So, despite the fact that many thought the market almost dead at the end of the zeroes, it was not completely crazy that a small team of e-Sourcing market veterans, including Mr. Alan Buxton who was the CTO of of Trading Partners back in their heyday, decided in 2011 to start a brand new e-Sourcing software start-up and build a new solution from scratch.

Two years later, MarketMaker4 is a strong offering for the mid-market that needs a new, modern, e-Sourcing solution. In particular, those mid-market companies that are late to the e-Sourcing game, those that are still relying on third parties to manage their sourcing events and are ready to bring those events in house, those that are trying to use ERP sourcing solutions, and those stuck on platforms that, due to acquisition, are stuck in integration limbo and haven’t been upgraded in a while.

So what is MarketMaker4? It’s a four-part sourcing solution that consists of:

  1. A modern e-Negotiation platform
    with a best of breed e-Auction and RFX solution
  2. with a built in supplier discovery engine
    built on the entire D&B database which is augmented with your own supplier database
  3. and market data indices that span commodities and currencies
    that let a buyer know current prices, historical trends, and relative market conditions (when the data is available)
  4. that is augmented with real-time product and sourcing support 24/7/365
    through online chat that connects all of the global support representatives around the world that are currently online.

The MarketMaker4 founders, who were involved in the space for over a decade and who worked for both software providers and services providers learned the following:

  1. While some companies will start with services to get going, these companies will eventually decide that pay per drink is expensive and look for software.
  2. The companies switching from services to software will typically select a best-of-breed software provider with little or no services or support beyond the product. As a result, due to limited sourcing and product knowledge on the in-house buying team, the product typically gets under-utilized and the company fails to achieve the ROI they expected.
  3. When the license expires, the company will typically revert back to a pay-per-drink, but limited to high-value categories, or put its faith in a good e-Procurement system, that will reduce maverick buying and, hopefully, with limited RFX capability, lead to better buying habits.
  4. But even if the company moves to a modern e-Procurement system, the company will typically have little insight into current prices or suppliers that they aren’t already buying from.

As a result, the team decided what was really needed for these types of companies was:

  • An e-Sourcing solution that was easy to use by the average buyer,
  • augmented with real-time support and guidance as new buyers get up to speed,
  • integrated with market index and currency index data (that could be linked into cost models), displayed in easy to understand graphical representations, that the buyer could use to understand current prices and likely trends, and
  • extended with a huge database of potential suppliers.

And that’s what they built. And in each component, they added some innovation to the mix.

  • The e-Auction product, which consumerizes the enterprise capability, is one of the most powerful on the market, with one of the most sophisticated, but yet easy to understand at a glance, interfaces out there.
  • While chat-based, they chose to build a support solution that connects all of their services and support personnel around the world who are currently available rather than use a call-center model. (And as they were just acquired by Xchanging, one of the big players in the Procurement market who are leaving MarketMaker4 as a stand-alone product and company, they now have a large network of support personnel around the world who speak multiple languages and can support their customers in their native language.)
  • Their market index solution is linked into the RFX/Auction module so that the buyer can see current component / raw material prices if there is a market index and can see current currency values as well as trends over the last year for every currency a supplier might bid in.
  • And they were the first e-Sourcing platform to integrate with D&B for the purposes of supplier discovery. Up until they did, most integrations were for risk data or data enrichment. As a result of their partnership and early efforts, they have one of the more powerful integrations and in addition to being able to search on name, location, etc. they can also filter on a variety of dimensions, including risk, size, diversity, etc. that even D&B can not filter on through their API.

MarketMaker4’s e-Auction product and supplier discovery products in particular are quite innovative, and SI will dive into them in more detail in the new year.

iValua: Proving Their Mettle with Source to Settle, Part II

Yesterday, in Part I, we noted that when we last covered iValua in 2010, they were one of the few providers tackling end-to-end sourcing and procurement in a single suite of integrated modules built on one common platform. We noted in Tackling End-to-End Sourcing and Procurement, Part I that this French company had capabilities that, at least to some degree, addressed each of the core phases of the basic sourcing-and-procurement cycle except decision optimization and tax reclamation. Since then, they have added advanced tax tracking capability, and a boatload of other features that include SIM/SPM, Risk Management, Project Management, Enhanced Analytics, and Extensive UI customization. Today, we will continue our coverage of the platform, which includes a module for Supplier Management, that we covered in Part I; Sourcing, Contract Management, and Catalog Management, that we’ll cover today; and Procurement, Invoice Management, Expense Management, Reporting, and Administration that will be covered in the remainder of the series.

Sourcing

Sourcing consists of sourcing project creation, schedule and workflow creation, RFX, and e-Auctions. As noted above, there is no decision optimization, but that is literally all that is missing in their sourcing module.

Project creation in iValua is very powerful as you can not only define the project, but set up the end-to-end workflow, define a schedule, assign team members, and track every step. A project has an identity which captures basic project information, associated documents, a sequence of tasks or actions that will fulfill the project, an assigned team, a schedule, and a forum where team members can collaborate and discuss issues. The tasks and actions supported are quite extensive – and include all of the standard source-to-settle steps such as requirements gathering, supplier selection, RFX preparation, response tracking, proposal evaluation, response analysis, award, and contract. From each task, the users can jump off to the appropriate module in the iValua suite to complete the task. The workflow engine is quite fine-grained.

Contract Management

Contract Management is the creation and management of contract templates, contracts, and signature transactions for e-signing. The gem here is iValua’s online drag-and-drop contract creation capability (with complete audit trail functionality) that works in the browser and fully integrates with Microsoft Word. The view, which has the section index on the left, the section texts on the right (each in their own editable box), and Word-compatible editing options on the top, makes it really easy to construct a contract. The tabs allow for quick access of the header, the team involved in the process, deadline (and auto-renewal) dates, exhibits, main clauses, items and services, negotiated terms, the associated contract scorecard, and the current status of the contract with respect to the defined lifecycle.

Catalog Management

Catalog Management is the process of importing catalogs, creating and managing catalog items, and managing services procurement. Catalog management works as you would expect, and the hidden gem in here is the extensive services procurement management capability, including timesheet capability. The services procurement module allowed for the creation of services profiles (like templates for services requisitions), price structures, and requisitions — which could be fee-based or timesheet-based. The platform has extensive support for services requisitions, and the unique requirements for services requisitions, that require proposed delivery details, schedules, proposed team members, rates, payment schedules, and insurance requirements. It’s not quite as extensive as the capabilities in the Contingent Workforce Management platforms (like FieldGlass) or Agency Lifecycle Management platforms (like DecideWare), but is more than sufficient for the majority of services-based sourcing projects that a typical Supply Management organization will need to address. It is definitely the 80% solution.

We’ll cover the remaining parts of the platform in the remainder of this series. Come back tomorrow!

It’s 24/7 for Robbie and the Coupa Factory, Part III

In Part I we announced that Coupa has been coding up a storm since we last checked in on them last summer (in Robbie and the Coupa Factory), completing Release 9 with major enhancements in expense management, invoice management, and catalog management; the android app; and the first version of their new sourcing module as well as some major improvements to their cart that will show up in release 10 later this quarter. In Part II, we discussed the major improvements in Release 9 around expense management, invoicing, and catalog management. Today we will discuss the new e-Sourcing module and how it makes Coupa one of the first providers to offer an integrated end-to-end e-Sourcing and e-Procurement solution.

The new Sourcing Module is e-Sourcing 1.0. RFPs, RFQs, RFIs, basic reverse e-Auctions, and basic e-Sourcing project management form the foundations of the new suite, which, to be honest, is not much more than you’d find in any e-Sourcing suite on the market, including the free WhyAbe solution available from SourceOne, but that’s not the point. The point is that the inclusion of this module in the Coupa platform makes Coupa, as far as SI can tell, the first Supply Management provider based in North America with an integrated end-to-end Sourcing and Procurement platform. SI has been saying for years that It’s Sourcing AND Procurement and that the only way to truly revolutionize Supply Management is to have one integrated end-to-end platform, and with Coupa’s current offering, with the exception of Decision Optimization (which is only critical for high(er)-dollar (complex) spend in an average organization just starting their e-Sourcing journey), the platform has the foundations of the remaining four stages of e-Sourcing and nine stages of e-Procurement. Some applications, like Spend Analysis, Contract Management, and Tax Reclamation have a ways to go (as tax codes outside North America can get quite complex), but the point is that there is a foundation that allows the entire process to be e-Managed. End-to-end projects can be created that follow the process from cradle (the initial RFI) to grave (when the final order is shipped, received, invoiced, reconciled, paid, and added to the Spend Under Management database for analysis).

Moreover, the entire process can be made available to every user of the platform. While complex sourcing events need to be driven by senior buyers, there is no reason that simple events for simple commodities or services needed by only one department can’t be driven by a senior person in that department, under the supervision of the appropriate Manager or Director. Why should Supply Management oversee every single sourcing event for temporary labour for a system implementation? If there are approved suppliers, approved budgets, and known requirements, there is no reason that a domain expert can’t drive the project with the help of Supply Management, if required. And if the spend for these one-time projects exceeds a threshold, which will be easily detected if budgets are exceeded or reports show significant spend in a given category, then the category can be the next Supply Management sourcing opportunity.

The sourcing module is as easy to use as the rest of the platform, and sourcing events can be created just as quickly as requisitions can be created. RFXs can have as little or as much content as is required; one or more questionnaires can be attached to get information about finances, supplier capabilities, insurance, Corporate Social Responsibility, etc.; an e-Auction can be triggered from an RFX (and initial bids imported); an award can be pushed into the contract management system and the catalog populated; requisitions can be created against the budget associated with the contract and the catalog items; purchase orders can be created on requisition approval; good receipts can be accepted and tracked against requisitions; invoices can be automatically correlated with the purchase orders; and payment approvals can be automatically submitted to your e-Payment system. It’s end-to-end automation of the tactical process, freeing you up for the strategic work.

It’s a great step in the right direction. While Coupa‘s e-Sourcing suite is still at least two versions behind what is being offered by the large e-Sourcing suppliers, it’s the perfect solution for a mid-size organization that doesn’t have a sourcing solution or a current Coupa customer that doesn’t have a widely used sourcing platform due to cost or personnel restrictions. It’s a step in the right direction, and one that is sure to keep the big sourcing providers on their toes, as the big sourcing providers will have to keep innovating to keep two steps ahead of this fast-moving SaaS company.