Today’s post is by Ron Southard, CEO at SafeSourcing.
I would be glad to personally discuss this premise with any Retail CEO or CFO that wants to challenge it!
Let’s review exactly what a reverse auction is, how simple they are to use and the potential financial benefits?
Reverse auctions are web based or Software as a Service (SaaS) tools 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 business or even large holding companies can locate and invite many more suppliers to take place in reverse auctions than they could possibly find or manage using traditional sourcing methodologies or even tools like BING or Google. During the reverse auction they can review on one screen all of the responses from suppliers, data about the suppliers, notes from the suppliers, product specifications and other necessary information in an instant. Upon auction conclusion which is typically less than 30 minutes including extensions host companies can review potential savings scenarios and award business right from their desktop. Sound simple? That’s because it is.
Now let’s get to the simple financial benefits. Let’s assume a $150M smaller 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 goods spend or roughly $11M. With well below industry average savings of just 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. Again this assume no tributes to Caesar or other funny accounting associated with new capital plans and the like
So, why don’t many companies use reverse auctions and other e-procurement tools? That’s a great question! Maybe someone out there has an answer.
If this author were you, I just could not ignore this type of opportunity.
If you’d like some examples of the types of savings SafeSourcing can generate for you by size of spend and category, please contact a SafeSourcing customer services account manager.
We look forward to and appreciate your comments.