Archive for January 26th, 2010

What type of category savings can you expect from the use of E-RFX tools?

Tuesday, January 26th, 2010

There are probably at least a dozen websites that speak to category savings. Each discusses different numbers. The reason the answer depends on who you ask is that to begin with every company defines categories differently. A simple example might be something like bottled water. Is bottled water really a category or is it a sub category of beverages which is a sub category of grocery. The first question that requires an answer is…Are you looking for true category savings or are you looking for specific product savings?  A follow on question might be; Are you asking for actual realized savings or are you asking for savings that are reflected at the end of an E-RFX event? If you are asking for true realized savings, there are a multitude issues that need to be discussed.  If the successful supplier is your incumbent, then the savings may actually be closer to those viewed during the E-RFX event; however, reality indicates that a large number of incumbents do not end up with the low quote.  If the supplier is not the incumbent, there are actually quite a few elements that result in realized savings that have to be considered.  By in large, they can be included in a catchall phrase referred to as switching costs. To begin with the supplier that you plan to award your business to may not be an authorized vendor in your data base. As such, the IT department and or the finance department are needed to add them to your database. A new contract may also be required with a company that you have not done business with before which requires the involvement of your legal department and may, in fact, add delays to the process that requires you to order additional product from your existing supplier at potentially higher prices than awarded during the E-RFX event.  If products are being delivered to a distribution center, slotting requirements are needed and pick lists require updating in order for the product to be available when ordered by individual store locations.

Now, let’s go back to the actual E-RFX event for a minute. At the end of the E-RFX event when business was awarded were the savings the same as displayed during the event? Did the E-RFX event just provide you with high level savings made up of all low quotes; or, if business was awarded to multiple suppliers ,were savings calculated in that manner?  Were funds, if included in the winning bid, included in the savings and treated the same way that your company treats them from an accounting perspective? Is shipping included in the final price and was it included in the price from your previous contract?  Are pre-event historical savings a result of how companies awarded business; or are you being quoted a historical average of all low quotes run through a system even though business was not actually awarded that way and savings may not have been realized?

So, what can you expect for category savings in an E-RFX event? The answer is it depends. It is however critical that you make sure you are working with a provider that knows what they are talking about.

We look forward to and appreciate your comments.