Bankruptcy Sucks Part II. But, it does happen to good companies with well intentioned leaders.

July 16th, 2009

It’s a shame when a company has to declare bankruptcy. Consumers suffer, employees suffer, suppliers suffer, and in fact all stake holders suffer.

Now, let’s look at our alternative e-procurement scenario. As a retailer we already know that the house is on fire, so we have to do what ever it takes to put the fire out quickly. I assume we all agree here. Remember we are already planning for bankruptcy. This is no time for “we have our supplier relationships to worry about” or similar objections. What relationships are more important to us in the first place, our consumer, associates, the community or our suppliers? In this model, best price and best quality for product and services wins.

Let’s look at the finances behind this new scenario. Let’s assume that average savings across all categories in retail is nearly 20% when using reverse auctions properly. This would include the proper use of RFI’s and RFP’s. Let’s assume the same retailer from our bankruptcy example were to assign 30% of their total cost of goods and services to this process. That would be $600M in spend if we assume 70% COGS. Let’s assume we achieve targeted savings of 20% after switching and other related costs are applied. Total savings in this scenario would equal $120M or $10M per month. This would we the same as the store closing model without loss of sales or associate lay offs.

This author is not naive enough to believe that some of both scenarios will not have to be deployed. Sometimes we have to close stores; sometimes we have to lay off associates. With that said if we are not using these types of advanced tools as the standard way we procure all products we are not putting our best foot forward. This does not mean that we have not used these tools on selected items or categories like plastic bags or technology or that our wholesalers and collective buyers don’t use these tools to source goods they sell to us. The fact is that we have and they are. In the first case we are not doing it across a broad enough range of categories, in the second scenario the savings they earn are not all being passed on to us.

We certainly look forward to your comments and would be glad to engage in a discussion on this subject.

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