Category Archives: RFX

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

Mostly Harmless, Part VI

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

Mostly Harmless, Part III

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An introduction to requisitioning.

In the last post, the requisition was defined as well as the information requirements that were associated with the requisition. This post will address some of the associated challenges of the requisitioning process, some associated best practices, and the benefits that could be expected from an appropriate e-Procurement solution.

Common Challenges

  • Creation Time

    It can take a considerable amount of time to create a multiple line item requisition when a user has to manually look up vendor codes, ERP/MRP codes, product codes, prices, etc.

  • Statement(s) of Work

    If the requisition is for temporary / contract labor, it can be a time-consuming and challenging process to construct the right SOW that will enable the vendor to identify the right resource.

  • Routing

    If the correct department / budget / product codes aren’t used, it can be difficult to route the requisition to the appropriate approvers.

Best Practices

  • Integration with core data systems

    ERP, Vendor Master, Catalogs, Punch-Outs, Marketplaces, and Networks.

  • Templates

    For standard BOMs, SOWs, and other regular purchases that can be quickly completed simply by filling in quantities, hours, and the few bits of information that vary from order to order.

  • Budget-Based Approval Process

    Requisitions are automatically routed to the appropriate budget manager if the request is beyond or outside of the budget.

Potential Benefits

  • Reduced Man-Hours

    Which frees up buyers to focus on more strategic cost-reduction tasks.

  • Faster Processing

    The right information not only gets the requisition to the right approver faster, but provides the approver with all of the information she needs to make a decision the first time.

  • Better Specifications and Statements of Work

    The use of templates written by experts will standardize and improve the requisitioning process.

Once the requisition is finalized, it begins the approval process, which is the subject of the next post.

Next Post: Approvals, Part I

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

Mostly Harmless, Part II

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A requisition is a request for a product or service in a written form. With respect to e-Procurement, it is generally an electronic request for a product or service in a standard form, which may or may not use standard product or service codes from either the organization’s ERP/MRP systems or the supplier’s (e-)catalog.

While the concept is simple, the reality can be quite complex, especially if the requisition is for a large BOM (Bill of Materials) that requires multiple products and services from multiple suppliers, as different types of identifying information and specifications can be required for each line item.

The requisition needs to be able to capture a significant amount of information. In addition to the following core information:

  • requisitioner
  • department, division, and/or organization
  • request date
  • requested delivery date
  • delivery location
  • line items, each of which requires:
    • organizational product/service code
    • supplier product/service code
    • quantity
    • price (from the contract, schedule, or catalog)
  • etc.

The requisition may also need to capture:

  • supervisor
  • budget manager(s)
  • AP contact
  • delivery contact
  • product description(s)
  • itemized Statements of Work (for services)
  • etc.

As a result, the requisition needs to be very flexible and capable of being augmented by the buying organization as needed. Furthermore, it needs to be able to extract information from the organization’s ERP/MRP system, vendor master, contract system, and catalog(s), punch-out(s), and/or marketplace(s). As a result, it must either support easy integration with these systems, or (one or more) standard XML input and output streams (and cache commonly used codes if the updates aren’t near real-time).

In addition, it has to be integrated into the workflow management system that handles approvals, m-way matching (against goods receipts, invoices, etc.) during reconciliation, and the data store(s) used by the analysis and BI tools.

When evaluating the requisition capability of an e-Procurement system, one should keep in mind the associated challenges of the requisitioning process, keep an eye out for best practice support, and insure that the solution will deliver the intended benefits, which is the subject of the next post.

Next Post: Requisitions, Part II

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The e-Auction: A Great Way to Buy Commodity Software

In a recent post here on Sourcing Innovation, we endeavored to explain how sometimes old-school works just fine with a case study from EC Sourcing Group that illustrated how a mid-size apparel retailer was able to use an old-fashioned multi-round RFX to streamline their ocean freight bid and reduce their costs by 19%, a savings significantly larger than what was expected in a time of rising costs.

Another situation where tried-and-true works just fine, also courtesy of EC Sourcing Group, is with respect to the purchase of certain classes of enterprise software that can now be considered a commodity. For example, a diversified manufacturing organization required an Enterprise-Wide Automated Travel & Expense Solution. Since this was a piece of relatively non-strategic software that carried a hefty price tag by the time license fees, maintenance fees, and, most importantly, installation fees were taken into account, and since there are a large number of providers of such solutions which have, more or less, similar features and functionality, the organization decided, with the help of their e-Sourcing provider, that the best approach was to use a multi-round e-Negotiation that began with an RFI/RFP and finished with an e-Auction.

After a detailed needs analysis that documented their current platform, functional requirements, integration requirements, and organizational processes, the e-Sourcing team constructed an RFI with over 100 qualitative questions designed to capture all of the information required to determine whether or not the provider’s platform could meet the organizations needs along with a RFP with over 50 line items designed to break out all of the relevant cost components to allow apples-to-apples comparisons and identify potential cost savings opportunities.

Each of the responses was scored by each team member against a pre-defined rating and then the suppliers was ranked automatically using the RFX software. At the end of the first phase, after the scorecards had been reviewed and analyzed, the decision was made that the top four (4) vendors who could meet the basic requirements would be invited to the auction, with the initial bids in the RFP used as starting bids. Before the auction, the bids ranged from approximately 575K to 1.425M. After the auction, the bids ranged from approximately 545K to 635K. In other words, the auction reduced the spread from approximately 850K to 90K, with one vendor reducing its bid by almost 45%! (The full case study is available on the EC Sourcing Group site.)

In the end, the organization was able to select the solution with the best price/value ratio (using a weighted auction where the ranking from the RFI and the RFP affected the final rank) at a cost that was significantly less than what they would have achieved using a straight-forward negotiation where the vendor would have charged literally as much as it thought it could get away with. The reality with enterprise software is that most vendors will try to charge as much as they think the customer will bear, which is often much more than what the software is really worth. The best way to get a good price on commodity enterprise software is to open up the sourcing process and use competition to your advantage — something that is easily done with any decent e-Negotiation suite.

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Intelligent Sourcing through Intesource

Founded in 1999, Intesource is another player in the e-Sourcing / e-Negotiation space, but one with a bit of a twist. Whereas most SaaS providers are trying to sell you the all-powerful self-service fluffy magic box cloud solution, Intesource is still focussed on providing a full-service offering. Specifically, while you are given full access to the platform, their sourcing experts, who have conducted tens of thousands of events for hundreds of companies with a combined supply base that consists of over 10,000 companies, handle all of the event details for you which frees your organization to focus on high-level strategy and analysis. (Of course, if you need guidance in that respect, their sourcing experts are willing to work with you to identify the categories that are likely to generate the greatest ROI.) This approach has proved very successful for them and their customer base, and they typically drive an ROI of 10x for their clients within one year.

In addition to their sourcing expertise, they also have the ability to deliver a customized platform, as they built their entire solution in-house. This customization can go beyond just look and feel and include integration to external systems or new functionality and customized workflows based on organizational processes and best practices.

Platform-wise, they have a fully featured e-Negotiation platform with extensive RFX, Auction, Supplier Information Management (SIM), and document/contract management capabilities, which integrates with Microsoft Sharepoint for those who want a (collaborative) contract and document authoring solution in addition to the ability to track contracts and associated meta-data. And while the platform is not multi-lingual, it is multi-currency and they are integrated with multiple currency exchange data feeds. As a result, up-to-date currency conversions are always available.

With respect to e-Negotiation, or the RFX and Auction component, a buyer can use a templated workflow, capture as much cost and supplier information as they need to, and iterate through as many rounds as required. Plus, there are thousands of templates available to choose from for just about every category imaginable, built up by the Intesource sourcing team over the last decade as they captured the knowledge and best practices that materialized from the tens of thousands of events they ran, many with the global sourcing teams of some of the largest food, beverage, and retail companies in North America (which are the verticals they have particular expertise in). These templates contain complete workflows, customized RFIs, and customized bid templates with all of the relevant cost components. This allows bids to be broken down into unit cost, transport cost, duties & tariffs, utilization costs, warranty costs, etc. And, of course, the auction functionality is full featured and permits suppliers to be ranked against each item, group, or total award; the auction to be automatically extended based on last bid time; and bids to require a minimum decrement.

With respect to Supplier Information Management (SIM), you can capture all of the basic overview, classification, financial, product, service, and catalogue information associated with a company and augment it with feeds from D&B that include risk indicators and MWBE information. You can augment this with your own categories and fields of interest, and collect the data with the built in RFI capabilities. You can also get current marketing pricing on a wide range of commodities, as they have integrated data feeds from over 160 market exchanges.

The document / contract management module is a straight-forward repository- based solution that lets you manage as many documents, and as many kinds of documents, as you want with meta-data indexing and search. Creation capabilities are available through Sharepoint integration.

Based on their extensive workflow capabilities, which supports the hundreds of customized templates that are available across hundreds of categories, they have built a solid e-Sourcing Project Management Module that allows you to not only track your progress, but build your own customized workflows and category templates which can capture a significant amount of detailed information with respect to each task.

Finally, Intesource has an extensive SaaS interface for the supplier as well as the buyer, where the home-page dashboard — which shows current events, previous events, offered awards, accepted awards, pending tasks, etc. — can be customized for each supplier as well as the buyer.

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