The reason is because middle market retailers are still not using low cost e-procurement tools such as reverse auctions.
There are two primary sources of objections that continue to halt the use of these profit enhancing tools in the middle markets.
The first source is your own buyers or category managers. For some, it is the false belief that these tools will eliminate their jobs. For others, it is the thought that in rising markets, buyers tend to be conservative in the hopes that their suppliers will continue to honor old contracts and delay price increases. Neither assumption is true. E-procurement tools make a buyer’s job easier, as they can do more in less time such as working with dozens of suppliers versus only the same few they have always worked with. Honoring old contracts almost never happens. Ever-greening of contracts is a huge problem in retail where the lack of sophisticated contract management systems that can provide automatic alerts results in literally thousands of contracts auto renewing annually at predetermined price increases. This results in huge cost increases to retailers that were not planned for. This is all the more reason to be thinking about your spend months before contracts expire even if it only results in cost avoidance.
The second area where you can expect pushback is from your incumbent suppliers or wholesale distributors. If you have never participated in the setup of an RFP or an RFQ (reverse auction) and most middle market retailers have not, that initial call to your suppliers to ask them to participate in a reverse auction event is always an interesting journey. Be prepared for all of the reasons in the world why you should not waste your time on this type of process. The more forceful the pushback the more likely you are to see savings that you should have seen earlier. As such, although suppliers may be well aware of or even using these technologies to reduce their own costs, middle tier retailers have not been able to share in these savings to the extent they deserve to.
If middle market senior executives were to lead the charge and e-procurement costs as ell as the availability of new sources of supply were no longer an issue, there is absolutely no reason middle market retailers should not benefit greatly from running e-procurement events such as reverse auctions.
Contact SafeSourcing if you’d like to impact this quarters earnings.
We look forward to and appreciate your comments.
Ron Southard – CEO SafeSourcing