Archive for July, 2010

Are retailers still using reserve price reverse auctions any more?

Friday, July 30th, 2010

A reserve is also sometimes called the desired price, or a “qualification price”.  Careful thought is required on the part of the retailer in determining their reserve price. Quite often retailers just rely on their existing or current price from their last contract. If careful thought is not given, this may in fact create an unreasonable expectation that results in less participation from prospective suppliers, particularly if the market has changed dramatically in an upward direction since the last award of business. You have to be very careful that once a reserve is met that suppliers will stop bidding because you have already indicated your desire price point.

In a reserve revere auction if the bidding does not reach the “reserve price”, the buyer is not obligated to award the business based on the results of the reverse auction. This can also add risk to the participation level of suppliers. However once the reserve price is met, the buyer is obligated to award the business to a participating supplier or group suppliers based on previously published auction rules. Most reverse auctions today include terms and conditions that protect the retailer from awarding the business whether the reserve is met or not. This author would caution that if you are just trying to collect prices to analyze market conditions, tell the suppliers up front. If you set a reserve plan to award the business.

Additional pricing considerations can be given to adding other price points or qualifiers in a reserve price reverse auction such as entering a market price. In the case of fuel, this may be from a price index such as OPIS, Platt or Gulf Coast. This information can be visible or blind to the supplier, but let’s the retailer compare a suppliers mark up strategies. This also offers a nice opportunity to calculate cost avoidance during an up market.

We don’t see reserve auctions to often anymore, but understanding the different types of formats and tools available to you and assessing them in your event setup for their potential impact can add to the quality of the data collected and the event itself.

We look forward to and appreciate your comments

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To Unbundle or not to Unbundle that is the retail e-procurement question of the day.

Thursday, July 29th, 2010

It is primarily because of this reason that most procurement companies are not able to drive the type of savings that their customers deserve.

At Safe Sourcing we discuss unbundling all of the time. We discuss it regardless of category or product. As a result, our low quote savings average nearly thirty percent across all categories while other companies struggle to achieve half of these savings.

For the sake of protecting our value add, I will not give you specifics on products, but think of all of the elements that go into a product becoming a product. This process will surely uncover those value added costs associated with acronyms like customer relationship management or CRM which are used as an excuse to hide margin dollars.

If your e-procurement event is one line item, your solution provider is not doing their job. If your event is two line items your solution provider is probably not doing their job. How many products are you aware of that you buy either for reuse or for resale that are made up of one component?

There is a lawsuit going on in Europe as we speak where a major manufacturer is being challenged to unbundle a particular product family. If you are interested, you can Google the subject.

In the meantime, hold a white board session internally and list any product that you buy for reuse or resale and see how many line items you can come up with that make up the product. Now think about how you might use that information in a negotiation online or otherwise. If you can’t figure it out, give us a call at 1-866-623-9006.

We look forward to and appreciate you comments.

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Pricing for Retail E-Procurement can be interesting!

Tuesday, July 27th, 2010

In other words, there are too many companies that have been at this for a long time whose pricing is way too high in the retail marketplace for what they provide.

I was speaking to a large retailer recently that has an unlimited use tool in place from a very large player in the e-procurement space. I asked what type of savings they were able to achieve and how many people they had assigned to handle events, supplier communication, hosting support etc. These are all of the normal questions.

After we had discussed at least 20 different categories, it occurred to the both of us that the savings from our events were at least a third higher than the savings from the use of the unlimited tool.  Even if you added in our fees, the savings were still substantially higher on event by event basis with SafeSourcing. There are a number of reasons for this. One is that to many times when retailers deploy a solution internally or as a SaaS offering they default back to their old way of doing business with a new tool once the solutions provider has left. Supplier research is limited, the number of participants is less, training is inadequate and the result is lower savings. There are also proprietary benefits to the SafeSourcing solution that I won’t share.

Another way that retailers over pay, is when an older company comes in and matches the lower cost of doing business with a newer and better provider in order to win the business. This model will not last because many of these older companies are not structured in such a way that will allow them to absorb these lower fees profitably on an ongoing basis. Over time your price will continue to rise. In fact next year, your price should go down if you are running the same event again. Hasn’t most of the work already been done in the past?

Some good questions to ask your prospective solutions provider would be the following.

1. How many events per month can one of associate host?
2. What are you doing to automate your solution to take out cost?
3. Will we pay the same in year two as we paid in year one for identical events?
4. Is your cost higher because of your investment in brick and mortar locations?
5. Is your cost higher because of your headcount required to run events?
6. What are your average savings for events over $100K?
7. What are your average savings for events under $100K?

There are certainly more questions but you get the idea. Be careful out there.

We look forward to and appreciate your comments.

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Retailers here are twenty additional reasons why you ought to be running reverse/forward auctions.

Monday, July 26th, 2010

This author has posted a number of times on twenty reasons why retailers should use e-procurement tools including everything in the procure to pay process. I post that subject a number of times a year. Quite frankly there are many more than twenty reasons. Here is a different type of look at the same subject.

1. It’s about the money.
2. It’s not about the money.
3. You don’t have specifications even if you think you do.
4. You will have specifications once the event is complete.
5. You have great relationships with all of your suppliers.
6. You don’t have great relationships with all of your suppliers.
7. You don’t know where to find additional sources of supply?
8. You will have at least 8-10 new sources of supply for every category you run.
9. All of your management team collaborate and make sure they aggregate their purchases. No they don’t.
10. You are getting the best prices in the market according to your buyers.
11. Believe me; you are not getting the best prices in your market.
12. All of your contracts are less than two years old! Ha, Ha Ha! They should be.
13. All of your overstock and out of cycle inventory has been removed from the back rooms of your stores! If it had, your shrink would be lower.
14. You are aware of all of your suppliers green and safety programs?
15. You are taking advantage of all of your suppliers green and safety programs.
16. You are measuring all of your commodity purchases against the appropriate indices.
17. You are getting the best use of your team because they have all the tools they need in order to source products and services efficiently.
18. Your people could be spending more time on more important projects if they used low cost SaaS e-procurement tools.
19. You have never had a contract auto renew or evergreen that cost you money.
20. All products and services you buy are top quality because you evaluate them regularly.

If you can only find three issues above that plague your operation, then you should be using e-procurement tools. Call us today. We’ll do the first one for free.

We look forward to and appreciate your comments.

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Retailers, here is another acronym to confuse you. What is an NMFC number?

Friday, July 23rd, 2010

An NMFC number is a National Motor Freight Association Classification. The code is a numeric indicator that identifies each specific type of product that can be shipped by a LTL (Less than full Load) carrier. The National Motor Freight Association presets these product classifications quarterly. If you have the NMFC number on your bill of lading you can avoid constant re-classification and therefore accurately identify each product you ship.
 
Typically you would use LTL to deliver these products when they weigh over 150 pounds and fill less than because it is less expensive than using parcel post services but is less than a truck load (TL). However be ware that in LTL shipping there are a lot of potential added costs

When your item weighs more than 150 lbs., truck transportation is more economical than using a parcel post service. Common carriers transport your item on a truck with additional small shipments from other companies so that the costs for transportation are shared. Any service that isn’t considered “standard procedure” may require additional fees such as lift gate pick up or delivery, inside pick up or delivery, notification prior to pick up or delivery, sort and segregate for delivery by the driver, HAZMAT fees and many more.

If you’re going to buy it knowing the terminology, where to get the data you require and how to actually ship it may help you from avoiding leakage of savings attained during your sourcing of the product.

We look forward to and appreciate your comments.

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What is UNSPSC?

Thursday, July 22nd, 2010

According to Wikipedia UNSPSC is the acronym for the United Nations Standard Products and Services Code, it is a coding system used to classify both products and services for use in the eCommerce. The UNSPSC was jointly developed by the United Nations Development Programme (UNDP) and Dun & Bradstreet Corporation in 1998 and is currently managed by GS1 US, which is responsible for overseeing code change requests, revising the codes and issuing regularly scheduled updates to the code, as well as managing special projects and initiatives.

UNSPSC was created so that companies would be able to track their purchasing patterns more effectively to ensure compliance with their contracts and also make it easier to conduct high quality catalog research. To that end UNSPC is divided into four areas which are segments, families, classes and commodities and business functions.

Other product classifications that buyers may be more familiar with are  DUNS (data universal numbering system), NAICS (North American Industry Classification System) and SIC (Standard Industrial Classification).

We look forward to and appreciate your comments.

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Retailers; if it’s green or safe label it as such. You might find some new customers.

Wednesday, July 21st, 2010

I was reading a great article in yesterday’s USA TODAY titled Furniture to be greener, but pricier  by Jayne O’Donnell. What caught my attention was an insert in the article also by the same author titled Finding ‘green’ furniture can take some effort. The premise of the insert was that you need to go to company’s websites if you are going to find out what makes up the products they sell as items will not be labeled or the sales people won’t know the answers.

For this author, that is complete whooie or at least should be. If a company of any merit has a set of CSR or Corporate Social Responsibility initiative, they tend to roll them out throughout their company to all employees as a differentiating service. This would certainly include everyone from the buyers who ask their trading partners these tough questions every day to the sales person that ends up selling the product.

However in a less than perfect world research is always helpful. If you do not post this information on your website, you should. If you do not have CSR initiatives, you should. If your sales people don’t know them by heart they should. At the end of the day your customers will have questions and they should.

We look forward to and appreciate your comments

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Retailers; can you compete with these top ten retailers in your market?

Tuesday, July 20th, 2010

Every one of the companies listed below use e-procurement tools to lower their cost of goods and services. They probably don’t even need to based solely on their sales volumes, but the do anyway and as a result get even better pricing.

1. Wal-Mart
2. Kroger
3. Target
4. Walgreen
5. Home Depot
6. Costco
7. CVS
8. Lowe’s
9. Sears
10. Best Buy

The reality is that you can’t compete with them on price alone. What you can do is improve your own margins and earnings so that you can stay in business and focus on what you do well. The ten retailers listed above cover every type of format and every type of product offered in retail from fashion to fuel.

So what can you do? First, try conducting a spend analysis of your detailed profit and loss statement and compare it to the industry leaders and other retailers in your market area. Look for anomalies where you may in fact have an advantage based on product mix and then try to figure out how to exploit it. Second, use e-procurement tools for existing and new products and services sourcing. Third, use contract management software to make sure that the savings you generate make it to your P&L.

Ask your e-procurement solutions provider how they can help. If you don’t get a good answers call SafeSourcing at 1-866-623-9006 or visit our website www.safesourcing.com and click on Contact Us.

We look forward to and appreciate your comments.

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What’s new in retail e-procurement?

Friday, July 16th, 2010

A small retailer said to me last week that he did a form of reverse auction on his own. I asked how he accomplished this. The answer did not shock me, but I did chuckle a little. I’m glad he was a friend because he asked why I was smiling. The answer was that he sent out an email to three suppliers that he knew and asked for a price on a specific product. He told them in the email to make sure their price was there best offer and then called each once received and pressured them down with the threat of the other offers. We won’t get into the number of calls he had to make, the time it took to create the specification, the number of emails sent back and forth or lack of knowledge as to any new or additional sources of supply. We also won’t discuss the underlying psychology of a reverse auction and the tools that encourage quality bidding. The basic premise was solid and helped to reinforce why an automated system would out perform his results every time as well as provide a detailed audit trail.

At least in the example above, my friend was trying in his mind. What continues to concern this author is that many retail companies from lower tier I companies through all of tier II companies are not using any type of e-negotiation solution. Most of these solutions are relatively low cost hosted or SaaS oriented tools and available to them covering the entire P2P (procure to pay) process. In addition many of them belong to wholesalers that may use these tools themselves but don’t pass on all of the benefits to their customer.

I will continue to focus on this issue in the hope that if one company reads, watches, prints and uses any of this information and then executes because of it any or all of the following benefits may befall them.

1. Profits can and should improve
2. Quality can and should improve
3. Product Safety can and should improve
4. Environmental impact can and should improve
5. Prices can be compressed
6. New sources of supply can be found
7. Risk can be mitigated
8. Evergreening of contracts can be held in check
9. Existing jobs can be protected
10. New jobs can be created.

If these were the only reasons to try and get out the message as to the stunning effect that today’s e-procurement tools can have on an organization it would be enough. But we all know there are many more good reasons beyond the ten listed above.

We look forward to and appreciate your comments.

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Retailers; the average price of a basket of groceries is trending up! Are your profits?

Thursday, July 15th, 2010

One thing that news print (I still love newspapers) offers that internet based news does not is the tactile fell of holding the paper open and scanning all items on those two pages quickly. Sometimes you actually find pearls that really bring in to question the logic or understanding of the relationships between seemingly unrelated articles. In data analysis we call these tangential or affinity relationships.

Now back to my original premise. I was reading my local ARIZONA REPUBLIC business section the other day and two articles jumped out at me. The first was titled “Arizona Grocery prices continue to climb”. It was on the front of the first page in the business section. The second was titled “Technology helps Valley logistics company to thrive”. It was on the bottom of the second page of the business section right near DILBERT. In this case, that is appropriate.

The first article discussed the fact that prices were rising because of an improving national economy (why?) and higher energy costs (this means fuel). The second article discussed the use of technology to optimize the flow and storage of merchandise within the ground freight industry by selecting the best transportation options.

As I work in this space, I was already thinking (duh) when I saw the title of the two articles. It occurred to me during reading them that the authors could have combined these two articles to come up with something great that might be titled Retailers are finding better ways to keep retail prices flat during an improving economy by using logistics technology. The byline might read something like this. Retailers can improve profit without raising prices and gain market share.

I never would have found these articles on line or had them jump out at me like they did if I did not still read newspapers. Jay Leno always uses news articles in his humor that causes one to think. This is my version. So think about this if you are a retailer. Why do your prices need to rise when the economy improves? The truth is they don’t.

We look forward to and appreciate your comments.

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