Archive for the ‘Reverse Auction Procurement’ Category
Friday, October 21st, 2011
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 to accomplish these types of results without adding staff, please contact us at SafeSourcing.
We look forward to and appreciate your comments.
Posted in E-procurement, E-procurement Solutions, E-procurement Tools, Reverse Auction, Reverse Auction Procurement
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.
Posted in Eprocurement Auction, Procurement Solutions, Procurement Tool, Reverse Auction, Reverse Auction Procurement, Sourcing Safe Products, Sourcing Strategy
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.
Posted in E-procurement, Reverse Auction, Reverse Auction Procurement
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
Posted in B2b Reverse Auction, Reverse Auction, Reverse Auction Procurement
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.
Posted in E-procurement, Online Reverse Auction, Reverse Auction, Reverse Auction Procurement
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.
Posted in B2b Reverse Auction, Eprocurement Auction, Reverse Auction, Reverse Auction Procurement
Friday, November 19th, 2010
There has been a lot of discussion about reverse auctions lately in the blogosphere. Most of it has centered on whether or not reverse auctions are strategic or not. Many of you are well aware of my opinion on that subject. What interested me was my customers thought that there was a negative reaction to the term. Guess where it came from? You’re right it came from the buyers which is one of the two places it usually comes from, the other being the suppliers. This normally happens during the early adoption stage of e-procurement tools within a company.
My answer to the question was you can call it what ever you want within your own company but do you know how many kinds of reverse auctions there really are. The answer was no. So listed below are some of the names of different types of reverse auctions. Some apply to specific industries while others are just enhanced versions of a particular type. Probably the most commonly used is the classic Dutch auction.
My question to you e-procurement types out there is how many can you name or better yet define the use of. And if there are so many types with the reason being manipulation of the results in different ways, then maybe reverse auctions are strategic or not.
1. English Auction
2. Multi unit English Auction
3. Yankee Auction
4. Proxy English Auction
5. Classic Dutch Auction
6. Vickrey Auction
7. Japanese Auction
8. Chinese Auction
9. Pay-Your-Bid Auctions
10. Aggregate Demand Auction
11. Negotiated Price Auction
12. Exchange
We look forward to and appreciate your comments.
Posted in Eprocurement Auction, Reverse Auction, Reverse Auction Procurement
Friday, September 3rd, 2010
We’ve all known for a while that our seat partners look over our shoulders to see who we are and what we do. I told him I was reading an Aberdeen business brief and who and what they do. I went on to explain that our company was focused on e-procurement tools for the retailers. He introduced him self as a private business owner with his two brothers and that he had experience biding in reverse auctions with Ariba and Free Markets.
We discussed SafeSourcing’s offerings and ultimately came around to what made e-procurement events successful for his company in the past as a prospective supplier and what would encourage them to participate again even if they did not happen to be awarded the business in a particular event. His take was that this was initially an educational process for their company and ultimately would become a way to do old things in a new way. He also suggested the following
1. Openly communicate with prospective suppliers
2. Make sure they understand everything and comfortable
3. Make sure they have no open questions.
With that as an understanding I offer the following list of sample questions one might consider when inviting a supplier as a new participant.
1. Does the supplier understand that there is no cost to them to participate?
2. Do they understand they will be trained at know charge?
3. Do they understand event timing and requirements?
4. Does the supplier understand the terms being used and how they apply to an e-procurement event such as? In fact, do they understand what a reverse or forward auction is?
a. Reserve Price
b. Proxy Volumes
c. Low Quote
d. Proxy quote
e. Funds
f. Terms
g. Notes
h. Extensions
i. Matching quotes
j. Event rules
k. Product specifications
l. Samples
m. Award of business
At the heart of it, it comes down to something we all know but don’t always practice and as such negatively impacts the sustainability of processes that just make good sense. And that is that the supplier is your customer too and the customer comes first and should be treated the way you would like to be treated.
We look forward to and appreciate your comments.
Posted in B2b Reverse Auction, B2b Supply Chain, E-procurement, E-procurement Solutions, E-procurement Tools, E-supply Chain, Retail Supply Chain, Reverse Auction Procurement, Strategic Sourcing
Thursday, September 2nd, 2010
I was reading a blog post from the Doctor over at Sourcing Innovation today titled “A Hitchhiker’s Guide to e-Procurement: Terminology” and I thought it was great as well as very timely.
Ultimately it is up to practitioners and solution providers of these tools to educate their customers as to what the proper terms are for the tools they are using. As an example E-RFI, E-RFP, E-RFQ. I have numbers of customers that have used other solution providers and not only are the definitions different by customer; they are actually different within a specific company. In some cases everything is referred to as a reverse auction and in other situations the companies have made up their own name for the service or tool.
This author uses Wikipedia and Wictionary quite often as a source and in this case, they have a very good definition that covers most of the terminology in the entire e-procurement space as well as related B2B and B2C internet based or private network based functions. As your company moves in the direction of a computerized supply chain management solution for your company understanding what you are asking for and what you are using will make both your job and that of your solution provider easier.
We look forward to and appreciate your comments.
Posted in B2b Reverse Auction, B2b Supply Chain, E-procurement, E-procurement Solutions, E-procurement Tools, E-supply Chain, Eprocurement Auction, Online Procurement, Online Reverse Auction, Procurement Auctioning, Procurement Outsourcing, Procurement Purchasing, Procurement Solutions, Procurement Tool, Product Procurement, Reverse Auction, Reverse Auction Procurement, Supply Chain Procurement
Monday, August 16th, 2010
Further more; your buyers can not save you as much as you might save if you used these types of tools. So when and if you do, make sure you measure and understand the true savings.
There are all sorts of e-procurement companies. Not all focus only on retail. However, all of them have web sites and all of the web sites tout savings that are all over the map. The question is what type of savings are they talking about. Following are some of examples.
1. Total low quote savings.
2. Total low quote company savings.
3. Total savings awarded companies.
4. Total realized savings.
5. Total savings versus budget period to date.
6. Total category savings.
7. Total savings year to date.
8. Total annual realized savings.
9. Total potential savings.
Companies really have to be specific as to what they ask each company relative to savings opportunities and make sure they have a formula in place for calculating savings over the course of the contract period for which the products are being sourced. There are all sorts of missed opportunities associated with actual event based low quote savings that can be created by lengthy review periods, delays in sample evaluation, extended award time periods, delays in contract dates, switching costs within the finance department, delays in shipping, specifications not being matched and specification creep that results in adding more expensive non specified items.
The bottom line is that you may have had low quote savings of 28% and that’s great. You may have had net realized savings of 18% and that’s great too. However if you don’t have a plan as to how you will measure savings you won’t know what caused the leakage and it can’t be fixed.
We look forward to and appreciate you comments.
Posted in B2b Reverse Auction, E-procurement, E-procurement Solutions, E-procurement Tools, Eprocurement Auction, Online Reverse Auction, Reverse Auction, Reverse Auction Procurement
