Archive for the ‘Reverse Auction Procurement’ Category

Reverse Auction

Friday, April 14th, 2017

 

Today’s post is written by Robert Rice, Account Manager at SafeSourcing Inc.

True or False

Even though reverse auctions have been used by businesses since the early 2000’s, there is still a misunderstanding on exactly how they can benefit both the vendors and the clients and why and when to utilize the practice. Here I will dispel falsehoods and shed some light on the benefits.

Only large organizations or public owned companies can organize reverse auctions- False

It is true that large companies were first to use this tool, but now reverse auctions have been successfully implemented in all size companies, across all market sectors. All you need is the right tool or hire the right company to facilitate your needs.

Only big organizations can afford reverse auction, because you need to invest a great deal of money and time. Also you need to construct the reverse auction structure-False

Today, SafeSourcing and their E-procurement tools can assist you to achieve savings without wasting time or hire additional staff for a reasonable fee.

Reverse auctions are a short-term method, for organizations that want to save money-False

SafeSourcing can open up doors to companies you might have otherwise thought you could not help, with both short and long term needs.

Reverse auctions are only effective for commodities and raw materials purchasing, and are not appropriate for services-False

SafeSourcing have been successful in all areas. Savings can be easily achieved for service needs through clear requirements with both specifics and cost.

Reverse auctions apply only to substantial budget procurements-False

There is no minimum amount for a successful reverse auction. If it is important to your company, you should choose what gets you the best value.

As you can see, there are a lot of misconceptions regarding the use of a reverse auction. A reverse auction can enlighten you where you stand in the marketplace. You might be very surprised what percentage of savings you are losing.

For more information on how SafeSourcing can assist you in exploring your procurement solutions for your business or on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative.  We have an entire customer services team waiting to assist you today.

We look forward to your comments.

 

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Going, Going, Gone

Wednesday, August 17th, 2016

 

Today’s post is by Dave Wenig, Regional Sales Manager at SafeSourcing Inc.

There are many variations of auctions, each with its own particular use. In eProcurement, reverse auctions reign as buyers are seeking lower prices and higher value for the goods and services they require. Within reverse auctions, we see many variations of this theme. Of course, organizations have plenty of options when determining how to go about running a successful reverse auction.

Sellers have many options as well. Auction types that seek to get the highest price for a good or service are plentiful with options like silent auction and Dutch auction being two well-known types. One of the most common types of auction is the English auction. An English auction is one where a seller seeks the highest price that a buyer will pay for the seller’s goods. Here again, an English auction can be modified to take advantage of different options like a reserve price set by the seller.

Organizations often choose to leverage these different auction types, both reverse and forward. At SafeSourcing, we work with our customers to both buy and sell goods and services through our tool suites. Purchasing organizations reap the benefits of the reverse auctions. Sellers enjoy their own customized auction tool.

Regardless of whether you’re buying or selling, your goal is to get the best price and SafeSourcing can help.

Dave Wenig is a Regional Sales Manager at SafeSourcing. Dave or any member of the experienced team at SafeSourcing would be happy to discuss how SafeSourcing can help you reach your buying and selling goals. For more information, please contact SafeSourcing. 

We look forward to your comments.

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What should Retailers do after they have addressed all of the low hanging fruit with their reverse auctions?

Tuesday, July 29th, 2014

Todays post is by Ronald D. Southard, CEO at Safesourcing Inc.

Retailers ask me all the time where to begin with their reverse auctions. It might surprise you that I tell them not to necessarily place all of their focus on the expense or indirect categories by default. The fact of the matter is that for most retail companies their largest area of expense is their cost of goods. In most cases this is going to be somewhere between 65% to 75% of total revenue depending on the industry vertical. By default the gross margin line is going to be somewhere between 25% and 35%. The expense categories also contains salary and benefits which makes the spend for indirect categories actually smaller than the number represented by a companies gross margin. Historically savings on indirect or expense categories has been larger than those of products for resale. In fact it may only represent a 1/3 of the gross margin line.

As an example let’s take a look at a retailer that does $1B in gross sales and has cost of goods of 70% or $700M. This retailer’s gross margin is 30% or $300M. About $100M of that is available for e-procurement related price compression. Savings promises are really all over the board depending on what e-procurement provider you talk to and how they measure actual savings. Let’s assume you do indeed source the entire $100M in indirect spend and end up saving 15%. If (and it’s a big if) all of the savings make it to the P&L, savings would total $15M. Now let’s take a look at the cost of goods (COGS) line. All of this is available for price compression. Let’s target just 50% of the spend in year one or $350M. If we assume savings here to be only 50% of what we see in the indirect spend area or 7.5%, savings generated would total $26.25M.

With the above very hi level calculations, let’s go back to the original premise of where a company should get started. This authors answer is actually everywhere. You should use these tools in the form of e-procurement to standardize the way you conduct sourcing. Maybe you’ll drive $41.5M in savings from both direct and indirect areas.

If you’d like to understand an easy six step process in order to accomplish these types of results without adding to your staff, please contact a SafeSourcing Customer Services Account Manager.

We look forward to and appreciate your comments.

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How does the Law of Diminishing Return apply to eProcurement RFQ reporting?

Friday, September 6th, 2013

Today’s post is from Ryan Melowic, Assistant Vice President, Procurement COE at SafeSourcing

My experenience with eProcurement RFQ reporting is that procurement team’s eyes are often bigger than their stomachs.  I say that because there are lots of numbers gathered during an eProcurement RFQ.  That data can be sliced and diced many different ways in order to show many different scenarios.  What procurements teams need from an eProcurment RFQ is just a few options.

One option is to look at all Low Qoutes.  What this identifies is how many vendors would need to be awarded  in order to relize maximum savings.  AS an example when  a company has 81 current suppliers and they can now award 14 companies in order to maximize savings it makes good sense to explore this oppritunity because 14 suppliers represents an 83% reduction in sources of supply and the administrative improvements associated with that reduction..

A second option  to consider is that of Low Company.  This  provides a single source of supply option.  In some cases it’s just plane scarey to put all of a companies eggs in one basket.  In most cases this option is a reduction in savings compared to the all low quote scenario.

A third option to consider is a hybread award scenario.  This  takes into consideration low quotes, overall low companies and potential another option like by division or number of vendors.  Typically, the top preformers are defined globally and then  an analisys is  conducted by location.  This data shows which of the top companies show the most savings by location.

A final option  might be to identify what saving looks like when vendors are selected by division and a split award is considered.  For instance if a company has 10 locations 3 locations are awarded to one vendor  and the remaining  to another.  When you do this type of scenario analisys  savings numbers are typically reduced.

When you apply the Law of Diminishing return to eProcurement RFQ reporting please keep in mind anything outside of what procurement teams need to make the award descion is an over abundance of data.

If you are interested to learn how  the SafeSourcing’s team can help your company get the right amount of data in order to make a descion please contact our customer service team.

We look forward to and appreciate your comments

 

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No matter what our current government leaders say, the economy is still terrible.

Tuesday, October 23rd, 2012

This author still can not believe how many companies, buyers and category managers do not advocate for the use of modern e-procurement tools.

The use of these tools preserves and creates jobs as well as generating many other benefits that your business is not receiving today.

The lack of use can really only be one or two reasons at this point. First is that you or your procurement team just go to work and do your job and don’t really care one way or the other. Second is that you do not stay up to date in your trade and have very little influence within your company. If this is not true, why are you still writing your own RFI’s and RFP’s for a small group of suppliers?

Maybe now there is a final chance to step up and try or recommend using e-procurement tools including reverse auctions? Who knows, maybe you’ll save enough money to save someone’s job, hire someone new or insure that your job will still be there when next years planning is complete.

Although they may not impact your job directly, the reduction of cost of goods, expenses and preservation of capital are all immediately achievable if you’ll just take a look.

A customer recently told me that they would not be adding any new jobs to their procurement department next year. In fact they have already more than doubled the size of their departments staff to drive  down costs through the use  of the SafeSourceIt™ family of procure to pay tools. This customer went on to say that others in other departments will in fact be able to keep their jobs as a result of the work we’ve done together. So in the worst economy since many of us have been alive, this customer has added jobs, protected jobs, saved significant money, improved quality with the use of SafeSourcing products. Another benefit is that we also continue to add jobs to support our customers during this same time.
In addition to all of the benefits listed above, here are some additional quotes from a CEO and his team that watched their first reverse auction.
1. “This was pretty simple to do”
2. “If we hired someone we could do these ourselves with you guys”
3. “This is fun”
4. “You mean the reports are already available”
5. “I love the sports concept”
6. “It was easy to follow the marquis and what was going on from one screen”
7. “The multiple color schemes were great”
8. “I can’t believe how fast you guys set this up”
9. “We saved that much money and only have to pay what we discussed”
10. “Can we do another one today”
11. “I may get a promotion out of this”
12. “I love that calculator at the end of the bid process”
13. “I like all of the supplier data that was accessible during the auction”
14. “Now I know how the big guys get the pricing they do”

It’s too bad our current political combatants for the highest office in our land can not be this detailed during their debates.

Why not join others that have come a little late to the party. You can still benefit because today’s tools are easier to use, more interactive, maintain your attention during an auction, integrate gaming technology to keep it fun and are lower cost than their predecessors. If you happen to have already been doing this for years, why not find an easier way or do it less expensively.

If you would like to have fun, save money and do it quickly, please visit us at www.safesoucing.com.

We look forward to and appreciate your comments.

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Hey buyers! The economy is still terrible. Maybe now is the time to finally try reverse auctions.

Wednesday, August 10th, 2011

However, we continue to see a reasonable uptick in the use of e-negotiation tools in retail and this author believes that some of the following quotes from a retail CEO and his team  that watched their first  reverse auction last week may be the reason why.
1. “This was pretty simple to do”
2. “If we hired someone we could do these ourselves with you guys”
3. “This is fun”
4. “You mean the reports are already available”
5. “I love the sports concept”
6. “It was easy to follow the marquis and what was going on from one screen”
7. “The multiple color schemes were great”
8. “I can’t believe how fast you guys set this up”
9. “We saved that much money and only have to pay what we discussed”
10. “Can we do another one today”
11. “I may get a promotion out of this”
12. “I love that calculator at the end of the bid process”
13. “I like all of the supplier data that was accessible during the auction”
14. “Now I know how the big guys get the pricing they do”

Why not join others that have come a little late to the party. You can still benefit because today’s tools are easier to use, more interactive, maintain your attention during an auction, integrate gaming technology to keep it fun and are lower cost than their predecessors. If you happen to have already been doing this for years, why not find an easier way or do it less expensively.

If you would like to have fun, save money and do it quickly, please visit us at www.safesoucing.com.

We look forward to and appreciate your comments.

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Do your buyers ever consider what type of auctions they need to run or the features they should use within each e- negotiation session?

Thursday, June 16th, 2011

Today’s strategic sourcing platforms have incorporated many features within their overall offerings that are there to drive behavior in your favor. Most companies don’t use many of them.

Can your supply chain leaders tell you what a blind auction is? How about an RFQ or a turbo auction?  What about a Dutch auction? Can they tell you what a reserve price is? What about the difference between and RFI and an RFP. How about when to use and RFI,RFP or RFQ?

Today’s reality is that many supply chain professionals can not give you a clean definition of the many types of auctions or the tools used to enhance participation within the auctions. This is really too bad because most of the terminology has been adapted from traditional procurement practices and negotiation strategies. Understanding these terms and where they play in the negotiation framework can help procurement professionals whether they are negotiating with on line tools or in person.

If you are already using on line negotiation or e-procurement tools, your solution provider should have a checklist they go over with you for each e-negotiation sessiont. This checklist should cover all of the options available to you and your provider should be able to discuss the strategy behind the use of these features.

Don’t be blind to the opportunity to drive maximum savings by not discussing strategy with your solution provider on every session you run. If you are doing everything yourself  i.e. self service, it might be time for a one day work session from a leading provider in order to make sure that you have all your bases covered.

We look forward to and appreciate your comments.

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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

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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.

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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.

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