Let’s review exactly what a reverse auction is, how simple they are to use and the potential financial benefits?
Todays reverse auctions are web/cloud based Software as a Service (SaaS) offerings that are part of very sophisticated procure to pay applications that let retailers and other companies find the best suppliers for any resale or not for resale product or service they wish to source. Using a web based reverse auction tool, retailers, other companies or groups of companies (Group Purchasing Organizations) can invite far more suppliers to take place in reverse auctions than they could possibly find or manage using traditional sourcing methodologies. During the reverse auction event they can review on one page all responses from suppliers, data about suppliers, notes from suppliers, product specifications and other necessary information at an instant. Upon auction conclusion which is typically less than 30 minutes retailers and other companies can review savings scenarios and award business from their desktop.
Now let’s get to the simple financial benefits. Let’s assume a $150M Retail Company with industry average earnings of one percent or $1.5M. Additionally cost of goods for this company is 70 percent or $105M. Let’s also assume this company were to only source ten percent of their for resale or above the gross margin line spend or roughly $11M. With below industry average savings of ten percent, total savings generated would be $1.1M which is a direct impact to net profitability. If all other segments of the P&L perform to plan and all savings are recovered during the same business calendar year net profitability would increase to $2.6M or a 73% improvement.
Wen company’s can begin almost immediately (SaaS/Cloud offering) with no risk (Cost Neutral Pilots) and no IT involvement,why don’t more companies use reverse auctions and other e-procurement tools? That’s a great question!
If this author were you, I just could not ignore this type of opportunity. If you’d like to learn more, please contact a SafeSourcing Customer Services Account Manager.
We look forward to and appreciate your comments.