Archive for the ‘Online Reverse Auction’ Category

Where is the best place for retailers to spend their effort to improve profitability?

Monday, April 3rd, 2017

 

Todays post is a oldie but goody by Ronald D. Southard, CEO at SafeSourcing

Obviously all retail companies would like to focus on all three areas and there are even sub sections of these top line areas that we could spell out as needing attention. The challenge is where to deploy already taxed resources?

It does not require an accountant to figure this out. If we assume that COGS or cost of goods and services is about 75% of top line revenue that would result in a simple gross margin of 25%. Based on a number of industry reports we are also safe using a shrink number of 3% of top line revenue.

This author is aware that there area a few companies with shrink below 1% and cost of goods below 75% which means there are also companies with gross margin better than 25%. The obvious question is; are these companies that solution providers want to target for profit improvement sales? Probably not.

So let’s look at an example of shrink improvement with data analysis tools and process improvement tools versus cost compression with SaaS e-procurement tools. Let’s assume we have a company that does top line sales of $1B. Using a shrink number of 3% shrink would be $30M annually. If you were able to reduce shrink by a third in one year, profit improvement would be $10M. If this were a supermarket company with a 1% bottom line or $10M, improvement could be as much as 100%.

Now let’s take a look at reduction in cost. If we assume the same company has COGS of 75% or $750M and that we were only going to address 20% of that number or $150 and only reduce those costs by 20% which is slightly above industry averages the net profit improvement would be $30M or 300% improvement in year over year net profit. If we were only able to achieve 10% savings which is well below industry averages, net profit would improve by 150%.

I’ll leave the gross margin example for you to figure out. In the above case it is clear that attacking COGS has an impact on the bottom line of up to 3 to 1 versus addressing shrink with your already taxed resources.

If you are interested in an immediate impact to your bottom line, please contact a SafeSourcing Customer Services associate today.

We look forward to and appreciate your comments.

Are Reverse Auctions Strategic? YES THEY ARE!!!!!!!

Thursday, May 5th, 2016

 

Today’s post is from Ron Southard, CEO at SafeSourcing.

This argument has continued unabated for years so this author is going to jump in and take a look based on my teaching background albeit that was a long time ago if you remember the 3 – R’s.

First of all, what is strategic is entirely up to the person or group using the tool, whether or not they have used it before and if it returns the results they require as part of their strategic plan. There really is only one meaning to the word strategic. So can a reverse auction be strategic? Of course it can. A companies overlying strategy whether we agree with it or night might be to simply get costs under control as quickly as possible. At least in the first year of tool use. I shudder to think that this would be a company’s entire strategy, but in these times of economic survival, it may well be. I can envision the following. The economy, competition or board of directors are kicking a company’s ass and the CEO calls a  staff meeting and says we have a new strategy and for the time being everything else will take a back seat in order to get our costs down. Come back in a week and tell you how you are going to do this immediately.

Now for the English lesson.

The word strategy is a noun that has several definitions. According to Wiktionary, 2 of those are.

1. A plan of action intended to accomplish a specific goal
2. The art of using similar techniques in politics or business

The word strategic is an adjective which we know is a word that modifies a noun and can also me modified by an adverb. So think of strategic as meaning of and pertaining to strategy and can be used comparatively as in something that is more strategic or less strategic.

So can a reverse auction or auctions be strategic. Of course they can and one example would be if your strategy was to simply reduce costs immediately. They can also be more strategic as part of a going forward strategy as well as provide other strategic benefits such as cleaning up your specifications and reporting as well as providing new sources of supply.

If your plan strategic or otherwise calls for reducing costs a.s.a.p. please contact a SafeSourcing customer’s services representative. We can help, and more of you may keep your jobs.
We look forward to and appreciate your comments.

How do you define full service reverse auction?

Friday, February 17th, 2012

I’m sure that every solution provider one would ask might have a slightly different definition.

From my perspective, a full service solution provider should be able to create, execute and support all auction activity including but not limited to the following.
1. Assistance in selecting Auction categories
2. Market insight
3. Determine the timing of category auction
4. Identification of potential quality suppliers in addition to existing
5. Building on-line auctions
6. Supplier contacts and training
7. Execution of live bids
8. Trouble shooting during live bids
9. Compiling and communicating reports within 24 hours
10. Award and Non-Award notifications to Suppliers
11. Providing ongoing customer support
12. Monitoring Supplier performance
13. Feedback from Retailers/Suppliers
14. Analyze the quality of each auction

The above deliverables if not executed in a full service program will result in less than maximum results and potentially failure of your program.

We look forward to and appreciate your comments.

Are reverse auctions a good tool to use with the retail distribution channel cost plus model?

Thursday, February 16th, 2012

According to Wikipedia Cost-plus pricing is a pricing method used by companies. It is used primarily because it is easy to calculate and requires little information. There are several varieties, but the common thread in all of them is that one first calculates the cost of the product, and then includes an additional amount to represent profit. It is a way for companies to calculate how much profit they will make. Cost-plus pricing is often used on government contracts, and has been criticized as promoting wasteful expenditures.

Once unit level cost has been established for the distribution of products it’s easy to turn that into a percentage and add it to the price of a product coming up with a distributed unit price or category price. The most important part of this pricing exercise for the distributor is to get the distribution costs correct. This can include price of storage, freight, length of travel, driver cost and any number of other costs. This is an area where a distributor can lose a lot of money if they are not very careful

So, are revere auctions a tool that can help distribution companies? The answer is a clear yes both above and below the gross margin line. If you like to know more please contact me at ronsouthard@safesourcing.com.

Who knows, if you partner correctly you might be able to improve your costs and your distributors margins as well.

We look forward to and appreciate your comments.

Do you want your first Reverse Auction to be a success?

Friday, February 18th, 2011

Competitive bidding is the process of inviting and obtaining bids from competing suppliers in response to documented specifications, by which an award is made to the best overall bid that meets or exceeds the specifications in areas such as price and quality. There are keys to understanding and making your bidding competitive and successful when using e-negotiation tools.

One of the most important elements and most overlooked is that of incumbent supplier communication once a bid has been authorized. This means that your entire company is on the same page. That page is agreeing to not setting any false expectations with your incumbent suppliers. Because you already have a relationship with these companies you will most likely receive calls, emails, IM’s and texts wanting to know what is going on. Your company line has to be that “We value our relationship and encourage you to use this process as it is the only process by which we will review bids”. Do not indicate that everything will be ok or that things will work out just fine or any similar language. If you are using a 3rd party, instruct your incumbent supplier or suppliers to provide any questions or communications they have through the third party only.

To make it simpler, be honest, be thorough and don’t set any expectations. Keep this in mind and all suppliers will feel like they were treated fairly and want to bid to win your business again.

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.

Here is how to insure that your e-procurement bids as successful as possible

Tuesday, January 11th, 2011

Competitive bidding is the process of inviting and obtaining bids from competing suppliers in response to documented specifications, by which an award is made to the best overall bid that meets or exceeds the specifications in areas such as price and quality. Probably one of the most important elements and most overlooked is that of incumbent supplier communication once a bid has been authorized. That is not setting any false expectations with your incumbent suppliers. As you already have a relationship you will most likely receive calls, emails or texts as to what is going on. Your answer has to be that we value our relationship and encourage you to use this process as it is the only process by which we will review bids.. Do not indicate that everything will be ok or that things will work out just fine or any similar language. If you are using a 3rd party, instruct your supplier to provide any questions or communications through the third party only. 

The e-negotiation process contemplates giving potential bidders a reasonable opportunity to bid, and requires that all bidders be placed on an equal playing field. Ideally each supplier must bid on the same documented specifications, terms, and conditions for all items. However breaking out individual line items that a specialty supplier can provide bids for can help to reduce the opportunity for suppliers to manage the overall gross margin of their bids and drive higher savings. The purpose of competitive bidding is to stimulate competition, prevent favoritism, and secure the best goods and services at the lowest possible price, for the benefit of the host company. Competitive bidding cannot occur where specifications, terms, or conditions prevent or unduly restrict competition, favor a particular supplier, or increase the cost of goods or services without providing a corresponding tangible benefit for the host company.

The above message needs to be communicated to any and all associates that are involved in the process and may have a reason to communicate with suppliers.

We look forward to and appreciate your comments.

What steps are required to launch a successful e-negotiation program?

Monday, November 29th, 2010

As you might imagine, each of the steps I offer below can easily be expanded to include a great deal of detail. However, since the question came from a senior executive who was really looking for an elevator ride type of answer I offer the following as a simple guideline.

1. Select customer & provider project leads
2. Conduct detailed category discoveries
3. Rank categories and findings by category
4. Develop a and prioritize a category strategy
5. Select lead category items
6. Conduct supplier discovery & research
7. Select suppliers
8. Train suppliers
9. Conduct online e-negotiation
10. Deliver online e-negotiation reports
11. Analyze e-negotiation results
12. Request samples if necessary
13. Award Business
14. Sign contract and begin delivery
15. Report ROI.

We know these steps return results quickly.

We look forward to and appreciate your comments.

Are Reverse Auctions Strategic? YES THEY ARE!!!!!!!

Thursday, November 4th, 2010

What is strategic is entirely up to the person using the tool, whether or not they have used it before and if it returns the results they require as part of their strategic plan. So can a reverse auction be strategic. Of course it can. The overlying strategy might in fact be to simply get costs under control as quickly as possible. I shudder to think that this would be a company’s entire strategy, but in these times of economic survival it may well be. I can envision the following. The economy is kicking a companies ass and the CEO calls a  staff meeting and says we have a new strategy and for the time being everything else will take a back seat in order to get our costs down. Come back in a week and tell you how you are going to do this immediately.

Now for the English lesson.

The word strategy is a noun that has several definitions. According to Wiktionary, 2 of those are.

1. A plan of action intended to accomplish a specific goal
2. The art of using similar techniques in politics or business

The word strategic is an adjective which we know is a word that modifies a noun and can also me modified by an adverb. So think of strategic as meaning of and pertaining to strategy and can be used comparatively as in something that is more strategic or less strategic.

So can a reverse auction or auctions be strategic. Of course they can and one example would be if your strategy was to simply reduce costs immediately. They can also be more strategic as part of a going forward strategy as well as provide other strategic benefits such as cleaning up your specifications and reporting as well as providing new sources of supply.

We look forward to and appreciate your comments.

Should I buy on demand software (SaaS) for my e-procurement needs?

Friday, September 10th, 2010

On demand software or SaaS (Software as a Service) by its nature is an internet based application and as such is accessible from wherever you happen to be as long as you have a network connection. With today’s broad band offerings that literally means anywhere. So the first rule of thumb is that it provides easy access. In addition, since most of the newest versions of SaaS applications are native web based applications, they integrate very nicely with most office infrastructures. With Microsoft being the most deployed environment, data is easily exported or imported to formats that comply with their standards. In many cases these tools can also be made 100% available to you within days of contract signature

Most of us have horror stories about when our PC, Network, Application etc. went down and we were not able to complete tasks at work. When we call our internal service department, the response is normally less than what we would like or hurry up and wait. With a hosted software application, it is the responsibility of the SaaS provider to maintain the application. They know up front that if they don’t do a superior job of support and availability, that you the customer can go somewhere else to find a provider that will. This is not the case with internally installed corporate applications.

Your data at a SaaS provider is also often more secured than the data at your corporate office. Since this is the core business of a SaaS provider, the architecture of the application normally has multiple levels of redundancy, failover recovery and is backed up regularly.

Typically, SaaS applications are easier to change than traditionally installed corporate applications. There are not as many feature upgrade charges with every point release in a SaaS environment because the provider needs to provide these features to continue to attract new customers and to keep up with the pace of the industry.

Finally, the total cost of ownership is much quicker in a SaaS environment than traditional application software installations. Often as much as 100% faster. In fact there are many stories of breakeven ROI’s with your first series of e-procurement events. The biggest question you have to ask of your future provider is are you a true SaaS environment with the newest technologies available or are you a reengineered ASP provider. I’ll comment more on that later.

We look forward to and appreciate your comments.

Ron