E- Auctions success road blocks. What are your true savings opportunities?

September 3rd, 2008

As we meet with retailers across North America

As we meet with retailers across North America, the most frequently asked questions are, “what can we expect for savings” and what is the time to event from contract signature?

Our answer is that it depends on a variety of areas that need to be uncovered during the category discovery process. Many vendors quote historical savings in person and on their websites that at best are simple savings and do not include other hidden but real costs. Retailers beware. Net savings reflected on your auction results are not what you will save once you have awarded business and or finalized your contract with new or existing suppliers. Many tools available in the industry today simply calculate net savings based on a summary of low quotes across all supplier participants. This has no correlation to final savings.

Hidden costs can result from switching costs for new suppliers, product quality or lack there of uncovered when reviewing samples, poor contract negotiation for awards that cross business years and miscalculate future costs and renewal language in new contracts are but a few items that must be well understood before an item or category is approved for auction.

When trying to uncover these costs a key to moving beyond these issues is senior management involvement including the executive office to help eliminate barriers from cross functional departments. A clear directive as to the use of e-procurement tools as a way to improve earnings, quality, stock performance and a way of doing business is an absolute requirement. Also required are new and interactive tools that make it easier to share specifications, volumes and prices and the capability to review results and measure savings by applying alternative award scenarios.

If practices are followed properly, and these types of issues are addressed during discovery and adequate executive sponsorship is in place, time to market can be a matter of weeks and savings adequately forecast.

I look forward to your comments.

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