Category Archives: RFX

Next Generation Sourcing

As stated in yesterday’s post, for Sourcing to continue to have an impact in a modern Supply Management organization, it needs to be taken to the next level. And I’m not just echoing the statements of The Altimeter Group, AMR, CAPS, Greybeard Advisors, The Mpower Group, Purchasing Practice, or my own persistent ramblings over the years (as I have been pushing for Total Value Management and Next Generation Sourcing strategies since day one). A modern supply management organization truly needs to take their sourcing practices to the next level if they are going to continue to distill value from Sourcing.

When you consider that:

  • Once you institute RFX, the manpower savings from automating bids can only be claimed once.
  • By the time an organization gets to the third auction, there are no more savings to be had as the fat from supplier margins has been squeezed out.
  • Once the allocation has been optimized across the supply base in a way that minimizes unit costs, transportation costs, (interim) storage costs, etc., re-running the optimization won’t lower costs further unless something changes — such as the identification of a new supplier, an alternate material (that is cheaper), or additional demand (that increases the economy of scale).
  • Once contract management and monitoring is put in place and no invoices are paid that are not for delivered, defect-free products, at contracted rates, there is no more on-contract leakage to be stopped.
  • Once controls are put in place to stop off-contract purchases that should be on-contract (through integration of the e-Procurement system with the Contract Management system), there is no more off-contract leakage to be stopped.
  • And once spend analysis has identified all the opportunities, the savings won’t actually materialize until something is done about them. This something cannot be appropriately identified unless the appropriate information is available to the knowledge worker.

As a result, in order for a mature Supply Management organization to continue to extract considerable value from (e-)Sourcing, e-Sourcing needs to be taken to the next level. Whether you call it DDSN2 (Demand-Driven Supply Networks), Next Practices, or Total Value Management, the message is the same. Take your Sourcing to the next level, or risk decreasing returns.

So where does one start? Upgrade or bring in a modern e-Sourcing platform. For some organizations, who are already using a top-tier provider and who have purchased a suite license, this will just mean learning how to take full advantage of the end-to-end integrated functionality and improving processes. For others, using point solutions from top-tier providers, this will mean buying licenses to the whole suite and/or integrating the point solutions with other solutions they already have. For the market majority, this will likely mean either replacing existing first generation systems (from providers who haven’t made any updates to the base functionality in the last five years) or, in laggard cases, skipping first generation e-Sourcing systems entirely and starting off with modern systems that have better, integrated, functionality.

And then, once these systems are in place, processes are updated to capture more data and consider more information in sourcing decisions, in a process that one vendor on the leading edge likes to call High Definition Sourcing.

Since this process is the closest to what Sourcing Innovation believes is necessary for organizations that want to take their sourcing to the next level (and, in the words of CAPS, become value-focussed), this will be the subject of the next series of posts (starting next week). Stay tuned!

Information … Information … Information

Yesterday’s post discussed the lack of realistic starting points for an average organization that wants to merge onto the value focussed path and the need for information. Then the post discussed e-RFX applications and how they are not always the answer as most are not configured for collecting more than a moderate amount of data, and the information required to make the right decision might require a large amount of data to be collected.

For example, consider the information required to make the right decision in a global freight bid where the company has over 5,000 lanes across five continents that are currently being serviced, in part, by almost 500 carriers. Not only will there be a need to collect up to 1,000,000 LTL and TL bids to know what the lowest rates are, but there will be a need to collect data on capabilities (refrigerated, freezer, hazardous martial, etc.), capacities, and serviced lanes. And then, once all of the information has been collected, past performance, guaranteed service levels, (commitments to) sustainability (such as biofuels and hybrid vehicles) will have to be considered in addition to costs and on-time-delivery capabilities. And if multiple carriers are almost equal, long term viability, strategic partnerships, and/or commitment to social responsibility might also need to be considered.

All-in-all, this represents a significant amount of data that needs to be collected, analyzed, and distilled into useful information — data that is not even going to be collected if a firm is still using a first-generation e-Sourcing platform. This is because:

  1. Traditional RFX tools, which are now a commodity (as every provider and their dog has one — trust me), are not built to collect that much information.
  2. Most of the RFX tools that can handle that much information, typically by way of Excel import and export, are not designed with supplier usability in mind. No supplier is going to quote 5,000 lanes at multiple LTL and FTL levels if they only service 3,000 and 2,000 can be broken into 20 cross-regional groups where each lane in the group is priced the same by mile.
  3. Of the few tools that allow for generic pricing and (typically) single-dimensional overrides, most won’t designed with the ability to easily design multiple levels of overrides and the OLAP-like navigation that’s really need to quickly zoom in on the relevant data items (which need to be viewed or altered).
  4. And while most of the better RFX tools allow a user to define as many RFIs, RFPs, and RFQs as the user desires, these generally have to be crammed into rigid workflows that may or may not fit the scenario at hand.
  5. Plus, while most of the tools can push data out into an auction or a SIM tool (that is the foundation for SPM and/or SRM), most don’t allow data to be pulled back in, since the first generation e-Sourcing model was a linear RFX -> Auction -> Decision Optimization -> Award -> Contract Management -> SPM flow.

And then, once you get past all that, you still have to analyze the data to distill the information required to make a good award decision. Because even the best strategic sourcing decision optimization on the market will fail if it’s not provided with the right data AND the right constraints (or, depending on your choice of terminology, rules). The right constraints can only derived by a knowledge individual that has the right information at her disposal.

So how do get the right information? You take your sourcing to the next level. So what does this Next Generation Sourcing look like? Stay Tuned.

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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A Hitchhiker’s Guide to e-Procurement: Purchase Orders, Part II

Mostly Harmless, Part VII

Previous Post

In the last post, the purchase order was defined as well as some of the requirements for its generation. This post will address the challenges associated with purchase order generation, some associated best practices, and the benefits that could be expected from an appropriate e-Procurement solution.

Common Challenges

  • Requisition Partitioning

    A requisition contains requests for multiple goods or services, which are covered by multiple contracts at multiple rates depending on SKU, volume, or other terms. Which contract? Which rate? Which terms?

  • Forward Matching

    How will the purchase order be matched to incoming goods receipts and invoices?

  • Duplicate Detection

    How does one detect if multiple purchase orders contain a requisition for the same good or service? How does one detect if duplicate purchase orders were accidentally cut?

Best Practices

  • Automatic Generation

    The system should automatically generate the necessary purchase orders from approved requisitions.

  • Automatic Price Confirmation

    The system should automatically verify that contract or catalog prices are being adhered to.

  • Automatic Distribution

    An approved purchase order that sits on someone’s desk waiting to be sent can hold up the business or a production line if the parts or services are not delivered on time because the supplier(s) did not get the purchase order on time. Once a requisition is approved, the purchase order should be sent automatically

Potential Benefits

  • Reduced Lag Time

    An e-Procurement system can automatically create and distribute purchase orders as soon as the requisitions are approved.

  • Reduced Overspending

    The system can automatically grab and populate the purchase orders with contract pricing. Some categories, like office supplies or electronics, see a lot of overspending because buyers requisition at catalog, but not contracted, rates or don’t buy in the appropriate quantities (which can be flagged and corrected during the approval process).

  • Reduced Errors

    The system can automatically pull up the right codes, the right templates, and the right prices so that the supplier isn’t sending it back with a request for further explanation, which would only delay the process further.

Once the purchase orders are distributed, the next step is to wait for delivery and issue the goods receipt, which is the subject of the next post.

Next Post: Goods Receipts, Part I

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A Hitchhiker’s Guide to e-Procurement: Purchase Orders, Part I

Mostly Harmless, Part VI

Previous Post

Formally, a purchase order is a commercial document issued by a buyer to a seller that indicates the type, quantity, and agreed upon prices for one or more products or services that the buyer is offering to buy from the seller. Once the seller accepts the purchase order, it forms a (one-off) contract between the buyer and seller, who will deliver goods and services at the agreed upon prices, in the agreed upon timeframes, to the buyer who must then, upon receipt of the agreed upon goods, in the agreed upon condition, make payment to the seller for the agreed upon amount.

A purchase order is the result of an approved requisition, but the relationship is not necessarily one to one. One requisition can generate multiple purchase orders, and this will commonly happen when a purchase order contains requisitions for goods and services from multiple suppliers. And while normally there will be one purchase order per supplier, if the goods and/or services are coming from multiple locations, there might be multiple purchase orders per supplier. In addition, a purchase order might be associated with more than one requisition, as requisitions from multiple buyers for similar goods to a similar location may be bundled into a single Purchase Order to save delivery and processing costs. As a result, the e-Procurement system must be capable of handling the many-to-many relationship between requisitions and purchase orders (and suppliers).

In addition to all of the information tracked on the requisition, the purchase order must also track approval information, delivery information, payment terms, and any other specific information required by the supplier. It must support attachments and include any attachments, schedules, or statements of work that are specified as necessary in any contracts that are in effect.

Furthermore, since the delivery of goods and services will generally result in the production of goods receipts and invoices, the e-Procurement system must support the association of purchase orders with the corresponding goods receipts and invoices, which, like the purchase order and requisition relationship, can be many to many. If the order is large, or if some items are not immediately available, a supplier may ship the order in multiple shipments, which would result in multiple goods receipts and which may be accompanied by multiple invoices.

In addition to tracking all of the relevant information, the system must be capable of translating the purchase orders in the standard EDI and XML formats that are used by the primary suppliers and electronically delivering them to those suppliers who have networks, marketplaces, or another on-line presence capable of automatically receiving an electronic purchase order.

When evaluating the purchase order capability of an e-Procurement system, which should support tight integration with the invoicing module, one should keep in mind the associated challenges of purchase order management, keep an eye out for best practice support, and insure that the solution will deliver the intended benefits. These topics will be addressed in the next post.

Next Post: Purchase Orders, Part I

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