Todays post is by Ron Southard, founder and CEO of SafeSourcing.
In part one of this post we discussed the fact that the use of e-negotiation tools should be just as beneficial in the private label area as they are in expense related areas. Quite frankly there is no area of the business that should not benefit from modern negotiation strategies and tactics.
The first hurdle that buyers and category managers have to get over is that the benefits are not only related to price. In fact that is a huge measure of success, but not the only one. Other benefits that are more on the soft side are related to work flow and the amount of work that a category manager, buyer or other procurement knowledge workers can reasonably accomplish when trying to source a specific product or category. That level of reasonableness may in fact lead to unintentional results that are less beneficial to the company in terms of missed quality improvement, missed pricing reductions and lack of adherence to other company standards to name a few when sourcing traditionally.
A few questions one should ask when beginning to source a product or category are as follows.
1. Do I have a quality specification for this category?
2. Do I have a list of suppliers outside our incumbents?
3. Do I have clearly defined terms and conditions?
4. How many suppliers can I negotiate or deal wit at the same time?
5. How many individual bids can I receive and respond to during the time it will take me to source this category?
6. How will I consolidate and evaluate all of the responses once received?
7. How will I evaluate all of the marketing rhetoric supplied that has nothing to do with the specification but may hold nuggets of value we may want to explore?
8. Who will schedule sample reviews once I get to a best few decision point?
Even in today’s world with all of the phone, voicemail, text messaging, fax capability and other types of communication methodologies there is only so much one person can listen to, evaluate or respond to.
Here are a few event based statistics of what a quality SaaS based e-procurement eRFQ event or Reverse Auction can provide.
1. From as few as 1 to as many as 6,000 items managed in a single event
2. From as few as 3 to greater 30 suppliers managed in a single event
3. Average Length of a typical event is only 31 min
4. Average number of bids submitted during an average event = to 198 unique bids
5. Average Bids Per Item during an average event = to 23
6. Average number of suppliers in an average event = to 6.
7. Average number of items in an average event = to 40.
8. Incumbent supplier is not the low bid > 50% of the time.
There is no single individual that can accumulate the same amount of data in this short amount of time let alone provide it in a reviewable format that is tailored to making an award decision. The clear advantage here is to the e-negotiation tool.
With all of the above to consider then should buyers try to continue doing this on their own and if they do, will they see the same type of savings as they did when they sourced there expense or indirect categories? The answer is they may see better savings and they won’t know if they don’t try.
In case you need some more ammunition, here’s just a few of the 100’s of examples of what type of savings results you might see in Grocery and OTC areas.
1. PL Beauty Supplies – 10%
2. PL Vitamins – 31%
3. PL Windshield Washer Fluid – 28%
4. PL Pain Relief – 14.9%
5. P.L. Cotton Products – 7.6%
6. PL Shortenings & Oil – 12%
If you’d like to learn more about sourcing your private label categories, please contact a SafeSourcing customer services representative.
We look forward to and appreciate your comments.