Category Archives: RFX

On the Sixth Day of X-Mas … (Cost Reduction Strategic Sourcing Strategies)

On the sixth day of X-Mas

my blogger gave to me
tactics for saving,
five golden rings,
four little words,
tri-focal lens,
two boxing gloves
and a lesson in strategy.

Six tactics that you can use to save in today’s marketplace are:

  • Reverse Auctions on Commodity Categories in Competitive Markets
  • Sealed Bids on Strategic Purchases of Custom Goods or Services
  • Decision Optimization on High Value Goods
  • Process Re-engineering with Strategic Partners
  • Lane Optimization
  • Distribution Center Optimization

Reverse Auctions on Commodity Categories in Competitive Markets

A recent post on Supply Excellence asks “if you are not sourcing, why not?” … and it’s a good question. Many key commodities that go into the parts you buy, and the energy your suppliers are using to convert raw materials into finished goods, recently hit two, three, and, in some cases, four year lows thanks to the recent decline in global demand. For some categories, it’s the best sourcing market we have seen in years as far as reverse auctions are concerned. So review the reverse auction selection criteria over on e-Sourcing Forum, where you can also find details on reverse auction strategy and reverse auction basics, brush up on the key steps to successful e-auctions, and get sourcing!

Sealed Bids on Strategic Purchases of Custom Goods or Services

If the category is strategic, and you can not use a reverse auction or open-bid methodology and have suppliers compete solely on price, because quality will be just as important, use a sealed bid.

Decision Optimization on High Value Goods

As outlined in my recent posts on e-Sourcing Forum and here on Sourcing Innovation where I asked if you can really afford to leave millions on the table, strategic sourcing decision optimization typically saves you 12% above and beyond what you will save with your best reverse auction, and, even today, still saves you up to 40% on some categories … which is an awful lot of bling if we’re talking about a 100 Million category. So review the decision optimization wiki-paper, select an appropriate solution, and start saving.

Process Re-engineering with Strategic Partners

Streamline processes and increase productivity. This allows you to increase spend under management and the savings you can generate. And if you’re worried about resistance, check out this post on overcoming worker resistance in process improvements.

Lane Optimization

Make sure you are using the right lanes at the right service levels from the right carriers. Otherwise, you could be considerably overspending on your transportation. As Dan Kowal pointed out in his recent Supply Excellence “sourcing opportunities during recession direct indirect logistics” post, the Baltic Panamax Freight Index has dropped 90% since May of this year. The market is rife with opportunities.

Distribution Center Optimization

An inefficient distribution network is costly. Save big by optimizing your network. For details on how, see my post on Bob’s Unique Talents.

See Box, c Box Bid

I was recently alerted to a new niche play in the sourcing market by the name of cBoxBid for buyers and sellers of, you guessed it, cardboard boxes. And just like you’re asking now, the first thing I asked is why would we need a marketplace just for boxes … after all, we have a large number of generic marketplaces already, not to mention a plethora of e-Sourcing applications that can be used to source boxes to your heart’s content.

The answer is we don’t, as there are dozens of ways to source boxes, unless you are a buyer who wants to get the best price possible on your box order. Cardboard boxes, and RSC boxes in particular, are the commodities of commodities … there are over 5,000 plants in the US alone that can make that RSC box for you. Some cities, like Atlanta, have 60 – 70 manufacturers in the local area that can make your box. And unless you’re an expert in the cardboard box marketplace, which you’re probably not if your job is to strategically source critical parts and materials, you’re probably not going to know which manufacturers are going to be able to give you the best quote, which is largely based on their current capacity utilization, at any one time.

Plus, it benefits the supplier, who is able to find more opportunities to increase production without having to spend thousands of dollars on potential client site visits. The average manufacturer is currently operating at 48 to 55% capacity, and spends an average of $700 to $1,000 for every three site visits by its sales force in its local area. A marketplace will bring it dozens, and maybe hundreds, of opportunities for the same price.

Moreover, because the marketplace is built around one commodity, the template is built in. This makes it trivial for a buyer to create a new request, and even more trivial for a supplier to find the requests that best matches their particular capabilities and production lines, and the requests that they can manufacturer cheapest. All a buyer has to do is define the production date, printing, style, wall, board weight/flute, board color, glue tab, dimensions, panel printing, warehousing requirements, quantity, delivery requirements, and bid-by date and the quote is ready to go. All the supplier has to do is enter a price. And the true market price is revealed.

The platform also offers buyers anonymity, suppliers accurate contact information of interested buyers, and both parties the opportunity to explore a potential transaction without a binding contract. A buyer places a bid, suppliers respond, and then a buyer releases her information to the supplier(s) that submit acceptable bids. At this point, an award can be made through the system, through the buyer’s in-house e-Sourcing system, or either party can walk away if a conversation uncovers a misunderstanding.

The tool also supports buyer feedback, and captures ratings from other buyers who have used a supplier.

The tool is free to buyers, and suppliers pay a monthly fee for unlimited use of the system.

Reminder: (e-Sourcing, e-Procurement, and e-Supply Chain) RFP Help Is Here

I wanted to remind you that, I as indicated last month during the summer slumber, you can find RFP Help Here. When trying to piece together an RFP for your new e-sourcing, e-procurement, or e-supply chain solution, you’ll need to navigate a minefield filled with fine-print, unnecessary and useless features, maintenance and upgrade charges, and extraneous user licenses (thrown in to produce an artificially-low “per license” price) — not to mention enticing offers involving long-term commitments that you absolutely should not be making. As outlined in What Does the doctor Do … For You, one of the services I offer is RFx Construction Help, including, if necessary, a full blown Needs Assessment.

As I have indicated many times in my X-emplification series, my X-asperation series, and in various RFx posts, including Don’t Put the Cart Before the Horse, you should never — ever — use an RFI or RFP “template” from a vendor when going out to bid, regardless of what the solution is for. This isn’t to say that you shouldn’t download them and look at them, but it’s unwise to use them or base your RFx upon them. For example, the Ariba RFP template for an RFx solution consists of page after page of feature-focused questions like “does the product integrate with Business Objects”, “please list your best practice event templates”, and “does the product qualify new suppliers” — the answers to which are most likely of no use to you. Not everyone uses Business Objects, and, more importantly, if the product is good, shouldn’t it be self-contained? If you’re in food service, you don’t give a hoot about best practice templates for petro-chemical manufacturing. Furthermore, an automated tool can never qualify a supplier — only an intelligent human can.

The usefulness of a vendor RFP template for a software solution is usually limited to the headings on the functionality pages, which can help you to identify features commonly found in that solution category. For example, looking at Ariba’s proposed RFP for an RFx solution, you can be pretty confident that RFx solutions might have some type of navigation, integration support for third party systems, project management capability, supplier tracking, survey creation, reporting, RFx creation, and auction event-management capabilities — and, more specifically, that the features available from Ariba will match the questions perfectly! But that’s all you can tell. You don’t know if the features mesh in such a way to provide the actual functionality you need, or whether the whole RFP is completely off base with respect to what you’re trying to accomplish. You need to ask use-case-based questions that reflect your business and your normal operating procedures. For example, is the reporting module included with the RFx system, or is it an added-cost item? Is the solution a tar baby of interrelated modules, such that you can’t really buy one without springing for all the others, in order to get the “complete” functionality? Has the vendor focused on eye-candy gee-whiz features, to the detriment of core functionality that you’ll really need?

RFx software itself is great example of what should be a mature, smoothly-working technology. eRFx has been around for 10+ years — so it’s easy to reason that surely every vendor has to have gotten it right by now. None of the analysts or major commentators in our space even question this point. Yet, I’m aware of recent RFx efforts using “mature” technology that have nearly failed due to very basic software limitations.

As per my last post, I believe that I am in a unique position to help, given my dual background in technology and sourcing/procurement. I am able to work with you to:

  • understand what you need and do a proper Needs Assessment
  • put together an RFx that outlines the important functionality you really need, not simply produce an exhaustive list of useless features
  • review the initial RFx responses and help you identify the follow-up questions that you need to ask
  • review a potential contract in order to identify:
    • unnecessary modules
    • missing functionality
    • missing cost definitions (so you don’t get burned later on)
    • and other potential weaknesses
  • if necessary, help you select a third party to assist with implementation or associated services

So if you need help with that needs assessment, RFx, or contract, feel free to reach out at any time. See the contact information in the FAQ.

Note to anyone who doesn’t understand category tagging: yes, this is an advertisement.

(e-Sourcing, e-Procurement, and e-Supply Chain) RFP Help Here!

Here’s irony for you: as a Purchasing and Procurement professional, some of the most complex products and services you will source are the very tools that you have to acquire in order to be successful. That’s right, I’m talking about e-Sourcing tools and e-Procurement systems.

If you’re a regular reader of Sourcing Innovation, you know that I don’t pull my punches when it comes to reviewing e-Sourcing and e-Procurement tools. I’ve seen it all, and I can assure you that there are very real differences between them — differences that can and will have a profound impact on your success.

I can help you find the tools and solutions that are right for your company and your needs.

Unlike industry analysts, who are paid by the very vendors they “review,” I do not have any skin in the game with regard to a particular approach or a particular vendor. And, unlike armchair “experts” who opine on technology without having any technology background, I am a technologist by training (a PhD computer scientist, in fact) who cannot be fooled by a pretty user interface or a piece of Marketing drivel. When I get a vendor brief, I insist on looking inside the cookie jar. I’m not satisfied just admiring the glaze on the outside. If the vendor won’t open the jar, I assume the worst, and I’m usually right. (And they don’t get a nice blog entry on Sourcing Innovation either!)

There are numerous mistakes that are easy to make in the RFI/RFP process. You should not be embarrassed if you have made some of them, because both vendors and analysts are aggressively pushing strategies that ultimately benefit them, not you. It’s very hard not to fall into the traps they’ve set for you.

For example:

  • Never, ever, use an RFI or RFP “template” from a vendor. At best, this is just a way for the vendor to sell you the exhaustive, but often mostly useless, set of “features” they happen to have. At worse, it is a way for the vendor to sow “poison pills” that other vendors will have difficulty answering, so that the scoring algorithm on the RFx will cause them to appear better than the competition, whether or not this is true.
  • Never use an analyst’s report to generate a list of “features” that the analyst believes a product should have. The analyst doesn’t know anything about you or your business, and typically knows very little about the products, either (other than what he or she has been told by the vendors who are paying him or her or his or her company).
  • Never use vendor marketing materials to decide on the “key features” that you need. Vendors often compete with each other on irrelevant points that have no bearing on the functionality that your business requires, and analysts tend to repeat these irrelevancies until they achieve a life of their own.
  • Never assume that a product is “stable” or “bullet proof” just because it’s been out there for years. I’ve seen mature RFP software utterly fail, when RFP software (after years and years of development!) ought to be a slam dunk. I’ve seen “enterprise” e-procurement systems where the price actually charged by the vendor does not match the catalog price (you’d think they could at least get that right!). By the way, neither of these examples involve small vendors.
  • If a claim seems outrageous, it almost always is. For example, no static report can replace an opportunity assessment from a trained professional. Don’t imagine that you can base a procurement strategy on the output of an automated tool.

Fortunately for you, I’m in a unique position to help. With my dual background in technology and sourcing/procurement, I can work with you to:

  • understand what you need and do a proper Needs Assessment
  • put together an RFP that outlines the functionality you need, not an exhaustive list of useless features. Vendors want you to focus on irrelevancies; you need to focus on core value.
  • review the RFP responses and help you identify the questions you need to ask, like I did generically last year in my X-emplification and X-asperation series
  • review a potential contract in order to identify:
    • unnecessary modules
    • missing functionality
    • missing cost definitions (so you don’t get burned later on)
    • and other potential weaknesses

So if you need help with that needs assessment, RFP, or contract, reach out at any time using the contact information in the FAQ. No job is too big or too small as I know that you don’t put the cart before the horse.

P.S. Yes, as per the categorization, this is an advertisement for the doctor‘s services. I’d hoped I wouldn’t have to state the obvious, especially since I classified it as such, but it appears I have to.

 

The e-Sourcing Handbook (Free e-Book)

The e-book edition of the e-Sourcing Handbook, co-authored and edited by yours truly, and sponsored by Iasta [acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric] (an e-Sourcing solution provider), is now available on request (through e-mail).

The e-Sourcing Handbook is your modern guide to Supply and Spend Management Success which utilizes and enhances strategic sourcing technology and best practices. Covering the full spectrum of the e-Sourcing cycle, the handbook helps you understand not only what spend analysis, e-RFx, e-Auction, decision optimization, and contract management are, but where and when to apply these technologies for maximum benefit.

Building on the resounding success of the e-Sourcing Wiki [WayBackMachine] and the e-Sourcing Forum [WayBackMachine] and Sourcing Innovation blogs, the handbook takes the concept of open access to knowledge and best practices one step further by compiling the best information on e-Sourcing to appear on all three public information sources into one definitive source. Furthermore, by mixing content from factual and informative wiki articles with blog postings that are both controversial and opinionated in an innovative manner, the juxtaposition of the two in the handbook allows the reader to see where the boundary lies between information and advocacy. It is the goal of the authors that, through this ground-breaking effort, the reader will gain a better understanding of e-Sourcing and how to take their supply and spend management efforts to the next level.

And, most importantly, unlike some of the recent e-books to pop-up, this is a real book – not a glorified marketing white paper doubled (or tripled) in size with a fancy (spaced-out) layout that contains dozens of colorful, yet useless, images. An exact mirror of the forthcoming print-book, it’s 220 pages of solid content backed up by a 4 page resource section, 8 page glossary, and 22 page bibliography for those who thirst for knowledge. The full table of contents and index are also included to help the reader quickly find what she is looking for.

But perhaps the foreward by co-author Eric Strovink of BIQ (acquired by Opera Solutions, rebranded ElectrifAI) says it best.

The e-Sourcing space has undergone a major transformation since 2000. Vendors who were once dominant or cutting-edge have failed. Many have undergone asset fire sales, become part of the walking-dead, or been absorbed into larger companies; and still others have been forced by their investors into mergers that make little sense to the outside observer.

 

These consolidations have brought about a dangerous commoditization of ideas, along with a slowdown of innovation. Even worse has been the obscuring – by over-enthusiastic and under-educated vendor marketing departments – of deeply important issues that sourcing practitioners must consider and understand in order to be successful.

In response to this, my co-author, Dr. Michael Lamoureux, launched the Sourcing Innovation blog with the specific purpose of educating practitioners and cutting through the marketing babble that had begun to dominate the discussion. Another co-author, David Bush, started the e-Sourcing Wiki (from which the bulk of this Handbook is taken) in a similar attempt to put fundamental e-Sourcing ideas and concepts into a publicly accessible forum. Over the years, David has also built Iasta’s e-Sourcing Forum blog into a credible and useful resource.

These efforts are laudable, but blogs and wikis are sometimes hard to navigate, and effort is often required to extract related information in a useful way. This Handbook is an effort to draw together the knowledge base of the Wiki, along with relevant blog postings, into a coherent and readable framework. Of course, one might argue that none of the authors are readable or coherent – and that may be a fair criticism – but we’ve made a best effort.

Because Michael is a strong and independent voice in the space, it’s appropriate that he is the editor of this Handbook. He has taken an interesting and unorthodox approach, choosing to mix factual and informative wiki articles with blog postings that are both controversial and opinionated. The juxtaposition of the two allows the reader to see where the boundary lies between information and advocacy. This is perhaps the first effort of its kind where two very different resources are interlinked in a constructive, and hopefully interesting, way.

 

I trust that this edition of the Handbook will be the first of many similar efforts, and that together we can collectively energize our space with accurate information and useful insights. Remember, the e-Sourcing Wiki is a public resource – anyone can contribute – so everyone should consider “sharing the wealth” and do so.