Archive for the ‘B2b Reverse Auction’ Category

Reverse and Forward Auctions are getting more attention now than any time in the last ten years.

Wednesday, December 14th, 2011

I was reading the Wall Street Journal yesterday by Francesco Guerrera titled Facebook?s $10B Question which was about their planned IPO. The article went on to discuss the possibility of using a Dutch auction for the IPO versus building a traditional book like most IPO?s. Quite franking I found it an intriguing approach and it has been used before for this purpose. I?m just not sure I would use the Dutch auction approach.

However that is for another discussion. The point of this post is that most companies using reverse and forward auctions are not even aware of the number of auction types available or how to use them for achieving specific purchasing goals. A couple of years ago I posted about the variety of auctions types and their use. I?m not even sure that most e-procurement companies could answer your question if you asked them to define the specific types and how you might use them for different situations.

There are all types of Reverse Auctions. If you check back tomorrow we?ll discuss a Reserve Price Reverse Auction which is one of the most common and how to use it.

If you can?t wait, contact a SafeSourcing Customer Services representative and they?ll be glad to discuss it with you.

We look forward to and appreciate your comments.

The Source of Internal Fear for Sourcing Projects

Tuesday, December 13th, 2011

Today?s post is by Mark Davis; Vice President of Operations and CTO at SafeSourcing.

Fear is the anticipation of the unknown yet assumed negative action that is about to occur.?

As it relates to sourcing, there are two very important pieces to this definition that can begin to unlock why some sourcing projects fail internally before they ever begin: the ?unknown? and the ?assumed negative.?? Today?s blog is going to focus on these two items as you begin to think about your 2012 projects.

Decision-Making Control ? One of the greatest fears procurement departments encounter from their internal customers is the fear that they will lose control of the decision making process and that price will end up being the only thing used to evaluate the final decision.? The important thing here is a kickoff meeting to discuss the project and reassure the team that every aspect of the project from the layout, to the participants, to the actual award decision will be reviewed and approved by the business owners.? Showing the clear checkpoints for evaluation will help ease the unknown of what is to come.?

Strong vendor relationships ? Vendor relationships can be the cornerstone of many companies and one that initially can create apprehension for some sourcing projects.? The key at this stage, no matter what approach is being taken (RFI, RFP, RFQ, etc.) is that the team understands that the overall goal of the project is to collect the information needed to make the decision defined in the scope.? In the process of doing this, the business must continue to operate so establishing that communication with vendors (particularly incumbents) will be handled with the upmost care..?

Sourcing something new? ? The biggest unknown and thus a big source of potential fear is the sourcing of a new item or service.? It is natural for an organization to run into some road-bumps when sourcing something new, especially a new service.? They important key here is to budget the time necessary to understand the service or item and the companies that offer it.? Many times the flow for a project like this will collect internal information through a survey, move into an RFI or RFP and if applicable wrapping up with final pricing collection.? Take it slow and you will see that new projects can actually present faster timelines and quicker final decisions.

As with any project there will always be objections and concerns from members of your organization.? Taking the time to communicate the objectives with the organization, showing them specific milestones where they will be intimately involved is the key for success as well as taking the time to gather all of the details necessary to make a final decision.? For more information on overcoming internal objections of your upcoming 2012 sourcing projects, please contact a SafeSourcing Customer Service Representative.??

We look forward to your comments.

Is it possible to compress prices in this market? Commodity prices are rising aren’t they?

Tuesday, June 14th, 2011

This is the precise reason why some companies are profitable and others are not. Just because the commodities that are the basis for products we buy are up, is no reason to not try and compress pricing through the use of e-negotiation tools or other more traditional methods. With that said e-negotiation tools will make the process much easier and insure compression in a much shorter period of time.

There is a lot that goes in to the products companies buy and maybe even more in the prices they pay. Two things are certain. There will always be suppliers that want to bid on your business. There will always be suppliers that are willing to invest to get your business. This dynamic is what will allow you to compress prices in an up market.

However, there is work to do on your part in order to make sure you are sourcing the categories or products that make the most sense at any given point in time. Here are two things you can and should do. Check your current contracts. Those that are over two years old with the same supplier will be more likely to drive savings. Check the commodity markets for specific commodities that will impact your pricing. As an example, the price of oil is up so freight will be more expensive. A great place to check commodity data is index mundi. You can check current and historical commodities and product related pricing.

Understanding everything about what you re buying and what drives its prcing and using the proper tools to leverage the supply base can and will result in price savings even in an up market.

We look forward to and appreciate your comments.

What is a Reserve Price Reverse Auction?

Monday, April 18th, 2011

In a reserve price reverse auction, the buyer establishes a “reserve price”, the maximum amount the buyer will pay for the goods or services being auctioned. This 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. I personally have seen retailers try to just use their existing price from their last contract. This type of practice may set unreasonable expectations, particularly if the market has changed dramatically in an upward direction since the last award of business. In today’s market, fuel would be a great example of something that you would not set a reserve price based on a previous contract if you wanted incumbent or new suppliers to take you seriously.

Traditionally, 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. 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.

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. 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 look forward to and appreciate  your comments

Ready for Valentine’s Day? What about the other 364 days of the year?

Monday, February 14th, 2011

Today hundreds of thousands of people will be out in force going to malls, grocery stores, jewelry stores and flower stores looking for that item in the 11th hour that they will likely pay too much for in order to show someone how much they value them.

It sounds crazy but this same craziness is exhibited all over the world in the purchasing departments of companies who pay a premium for inventory after a contract expiration date has passed, keep incumbent vendors even though they are getting overcharged because it is easier and waste perfectly good excess inventory just because they have no plan for how to control it.
Like spreading the effort of St. Valentine’s Day over 365 days instead of just one, what if companies began to put the plans in place to help them source smarter and safer?

What if companies began leveraging reverse auction tools and services that allowed for the review of the BEST vendor instead of settling for an incumbent because they think it will take too long to find another vendor?
What if companies employed contract management tools that would allow them to be alerted by email so that they never miss important contract dates?

What if companies used a 3rd party to help them move their excess inventory instead of wasting it?

They may find that they end up asking themselves why they weren’t doing it all along!

We look forward to and appreciate your comments.

Is the inclusion of freight in an e- bid or reverse auction equal to the net landed cost?

Wednesday, February 9th, 2011

If you are looking to break out all of the other costs associated in a product bid, just asking to have freight included or free freight within a certain radius or other similar language will not accomplish net landed cost or allow you to manage it going forward.

Quite often the terms net landed cost, haul back, FOB and others come up during the logistics portion of a sourcing event. Some times they are bid on separately and or delivered by a third party. When a company says they want a net landed cost what they are referring to is the cost of a product or products plus all of the relevant logistics costs, such as transportation, warehousing, handling etc. In other words, what?s my cost when it gets here or where we want it?

If you want to drive the best pricing and service possible you need to understand the terminology and make sure it is clear in your specifications and terms and conditions.

We look forward to and appreciate your comments.

What is a Vickrey reverse auction?

Tuesday, December 7th, 2010

According to Wiktionary the Vickrey reverse auction is named after a Canadian professor of economics named William Vickrey (1914-1996) who was also a Nobel laureate.  Vickrey’s paper, Counterspeculation, auctions and competitive sealed tenders, was the first of its kind using the tools of game theory to explain the dynamics of auctions. Any one that truly understand the magic of a reverse auction understands that the same type of psychology that drives gaming in a Casino drives the dynamics of a reverse auction.

There are a number of types of reverse auctions which is why a strategy is important when you look at each category that you decide to take to market. Specifically to the opening question, a Vickrey auction allows for selling single items where the lowest bidder sells the item at the price offered by the second lowest bidder.

Now try and figure out how you would implement this strategy. Would you use ranking? If so, what impact might it have?

We look forward to and appreciate your comments.

When should you run a reverse auction? How much margin is enough?

Tuesday, November 30th, 2010

A lot of privately owned companies are happy to grow a little every year, add employees, make payroll, have happy associates and put a little money in the bank. It is only when a company decides to be a public company or use a Venture Capital Company that this philosophy becomes a problem.

This author could go on and on relative to the subject of realistic earnings; which continues to piss me off. However the title of this blog is much simpler. The answer is how much margin  you want to target and how much should your supplier be allowed to make when selling products to your company.

A simple suggestion is if your company margin is plus or minus 5% of the industry norm you probably can afford to look at a number of categories as good candidates for a reverse auction. The technology area is one that often offers a pretty good opportunity for cost improvement which means increasing your margin and reducing what the manufacturers is making. A site that can help you with this in the technology area is isuppli.com which provides market intelligence for the technology space. In a recent review of technology gadgets in Men’s Health magazine isuppli lists a number of products such as Apple IPOD’S and Blackberry Torch whose margins are above 60%. This is based on materials plus production costs and the current retail price.

If you want to come up with a list of good items to take to reverse auction, look at your company’s gross margin and the margins of your suppliers by product and a pretty good list will reveal itself.

We look forward to and appreciate your comments.

Scottsdale Arizona’s SafeSourcing Inc. releases outstanding Q3 2010 results.

Monday, November 8th, 2010

Despite the continuing economic condition SafeSourcing Inc. reported significant 3rd quarter 2010 revenue growth of 42.45% versus the same period of 2009.Safesourcing has also continued to significantly grow its customer base with wins across all retail verticals as well as other new industries. SafeSourcing also recorded significant net income for the same period.

According to Ron Southard SafeSourcing CEO, We continue to honor the commitment we made to the retail market when we launched this company of being able to address all spends regardless of size. During 2010 we have sourced products for companies with 1000’s of stores and for companies with only a single location. SafeSourcing has run hundreds of millions of dollars through our system this year for all RFX types and provided new sources of supply, a focus on companies CSR inititives and significant savings across all categories. Southard continued by saying that they could not be more pleased with the faith that their customers have placed in SafeSourcing during a very challenging economic climate.

To learn more about SafeSourcing please visit our website www.safesourcing.com.

We look forward to and appreciate your comments.

Scottsdale Arizona?s SafeSourcing Inc. releases outstanding Q3 2010 results.

Monday, November 8th, 2010

Despite the continuing economic condition SafeSourcing Inc. reported significant 3rd quarter 2010 revenue growth of 42.45% versus the same period of 2009.Safesourcing has also continued to significantly grow its customer base with wins across all retail verticals as well as other new industries. SafeSourcing also recorded significant net income for the same period.

According to Ron Southard SafeSourcing CEO, We continue to honor the commitment we made to the retail market when we launched this company of being able to address all spends regardless of size. During 2010 we have sourced products for companies with 1000?s of stores and for companies with only a single location. SafeSourcing has run hundreds of millions of dollars through our system this year for all RFX types and provided new sources of supply, a focus on companies CSR inititives and significant savings across all categories. Southard continued by saying that they could not be more pleased with the faith that their customers have placed in SafeSourcing during a very challenging economic climate.

To learn more about SafeSourcing please visit our website www.safesourcing.com.

We look forward to and appreciate your comments.