The worst economy in over eighty years will drive poor retail results.

October 3rd, 2008

How can retailers use the leverage of next generation e-procurement tools to change their financial outlook now?

How can retailers use the leverage of next generation e-procurement tools to change their financial outlook now?

The key to the above question is the term leverage which suggests that with the same amount of effort more work can be done by using more leverage. Next generation tools use leverage throughout their design to improve on or do more work than original or legacy applications with the same or less effort or resources. One of the most famous quotes relative to leverage is attributed to Archimedes (c. 287 BC –c. 212BC) who was considered to be one of the greatest mathematicians of all times. The modern version of the quote “Give me a lever long enough, and a prop strong enough; I can single-handed move the world.”

Let’s look at one early generation tool for retailers, the supplier database. The theory was that as an e-sourcing company conducted reverse auctions on behalf of a retailer that the incumbent and other suppliers provided by the retailer would be added to the vendor’s database. If the vendor were successful with multiple retailers, the database would grow over time. There really was no data to support how many suppliers, distributors or manufacturers were required to drive the best reverse auction results for a particular product or service. Other data gathering practices such as phone book searches were used to buffer what was generally accepted as a small source of supply by most retailers. Reverse auction events were run and savings generated, but sustainable results over the long term were limited beyond minor compression due to the lack of new sources of supply. In fact in many cases, retailers were not allowed access to the vendor’s database as it would reveal the actual shortage of suppliers within certain regions and other geographies.

Now let’s apply some leverage to the supplier identification practices with a next generation database that uses modern search techniques and intelligent agents to conduct supplier research. In order to support best practices it is generally accepted that reverse auction events require at least 5 to 8 suppliers to drive the best results. In order to accomplish this, multiple search criteria are required such as country, state, and region; SIC code, zip code and a variety of other related data. The database also needs to have a large number of suppliers so that any category for any region can return at least the number of suppliers to support best practices for auction participation. With today’s tools such as Google, ask.com, search me and boogami and suppliers that are familiar with the reverse auction process it is much easier to build a relational database that can provide supplier data instantly. This saves time, insures success and creates a basis for sustainable process improvement.

So, to paraphrase Archimedes, give us a database large enough and a search tool flexible enough and single-handed a procurement professional can source from the entire world and a lower acquisition prices beginning today.

We look forward to your comments.

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