Archive for the ‘Reverse Auction’ Category

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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Strategic Sourcing Techniques Using Reverse Auctions

Thursday, February 2nd, 2012

Today’s post is by Ryan Melowic Director of Customer Services at SafeSourcing.

Strategic sourcing is critical to any business owner or buyer in today’s market.  Strategic sourcing techniques that focus on getting the best deal possible when purchasing products or services should be a part of any organizations procurement strategy.  By having suppliers competing for your business it allows an organization to discover the best terms that their particular market has to offer.  Most small to mid-sized businesses don’t have the resources or connections available to discover vendors outside of their local market place. By utilizing strategic sourcing tools like reverse auctions, your organization can more effectively control costs, achieve better terms, increase value from existing purchases all while maximizing efficiencies of your purchasing process.

Reverse auctions as a sourcing strategy can have an incredible influence on an organization’s cost of operating their business which speaks directly to the bottom line.  Taking into consideration even a small cost savings on products or services can have a value increase that can significantly impact the bottom line.  Studies show that just saving 7% – 10% on procurement costs can have a direct increase on an organizations profit margin and in some cases seeing a 30% – 50% increase.  Strategic sourcing techniques using reverse auctions can be a great strategy for increasing profit margins.

The strategic sourcing technique of using reverse auctions is just one sourcing strategy that allows organizations to feel confident that they are getting the best deal possible when purchasing products and services.  Historically reserved for large corporations and multimillion dollar purchases, today’s newer reverse auction solutions, such as the one offered by SafeSourcing, allows this technique to be available to small and mid-sized businesses and for purchases of all sizes.  Representing capitalism at its best,  reverse auctions a re a strategic sourcing tool that brings competition together to have an opportunity to bid for business they may not have otherwise gotten while at the same time putting the purchasing power of an organization in a platform where these vendors compete aggressively in a real-time environment for their business.

For more information on Strategic Sourcing Techniques Using Reverse Auctions, please contact a SafeSourcing Customer Service Representative. 

We look forward to your comments.

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What should our category savings be?

Wednesday, January 4th, 2012

The answer is that it depends on the industry, company or vertical within an industry as well as who you are asking and what you will actually be measuring. There are dozens of procurement focused websites that speak to or quote category savings.

The reason the answer depends on who you ask is that to begin with every company defines their categories differently. Yes there is similarity across industries in areas like fleet maintenance or currier services. However when we look at the retail landscape and an example like bottled water, thinks get a little murky. Is bottled water really a category or is it a sub category of beverages which is a sub category of grocery. If it is a true category, your buyer or category manager should be able to provide you with pricing, margin and any related cost that shrinks the later.  So, the first question that needs to be answered is…are you looking for true category savings or are you looking for specific product savings. The products savings are good, but don’t get the product to your shelf.  The next question one might ask is, are you asking for actual realized savings or are you asking for savings that are hi-lited at the end of an e-procurement event? If you are asking for true realized savings, there are a multitude issues that need to be discussed.  If the successful supplier is your incumbent, then the savings may actually be closer to those viewed during the e-procurement event; however, reality indicates that a large number of incumbents do not end up as the low quote.  If the supplier is not the incumbent, there are actually quite a few elements that result in true savings that have to be considered.  By in large, they can be included in a bucket referred to switching costs. To begin with the supplier that you may have just awarded business to may not be an authorized vendor in your data base. As such, the IT department and or the finance department are needed to add them to your database. A new contract may also be required with a company that you have not done business with before. This requires the involvement of your legal department and may, in fact,  add delays to the process that require you to order additional product from your existing supplier at potentially higher prices than awarded during the e-procurement event.  If products are being delivered to a distribution center, slotting requirements are needed and pick lists require updating in order for the product to be available when ordered by individual store locations.

All of the above assumes that your buyers know where to find additional suppliers in order to make the event competitive in the first place. Should they go to other wholesalers, manufacturers, distributors, other vertical suppliers that don’t traditionally supply your vertical?

Now, let’s go back to the actual e-procurement event for a minute. At the end of the e-procurement event when business was awarded were the savings the same as displayed during the event? Did the e-procurement event just provide you with high level savings made up of all low quotes; or, if business was awarded to multiple suppliers ,were savings calculated in that manner?  Were funds, if included in the winning bid, included in the savings and treated the same way that your company treats them from an accounting perspective? Were distribution charges and other uplifted costs removed or bid on separately?  Are pre-event historical savings a result of how companies awarded business; or are you being quoted a historical average of all low quotes run through a system even though business was not actually awarded that way and savings may not have been realized?

In order to actually answer the questioned posed in this post, the real answer is that I need to ask you some questions and depending on your answers I can give you a range of savings based on the size of your total spend and dependant on other market influences such as fuel costs and other related commodity costs.

So, what can you expect for category savings in an e-procurement event? The answer is it depends.

We look forward to your comments.

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Reverse auctions will drive consistent results over time.

Thursday, December 22nd, 2011

To use a baseball analogy, you may not get the grand slams and homeruns typically seen during first year implementations of reverse auctions but with proper planning and execution you will at a minimum continue to beat market pricing. Think of it as singles, doubles and triples for the at bats after you have hit a home run.

In order for this to happen we have to understand how to conduct successful auctions in today’s business world and it is not the same old same old where the low bid always wins. The number one job of any business is to drive bottom line profitability. Because of this, companies that win your business during an E-RFX process need to make the business they have just won as profitable as possible. They may take your business during an auction as a loss leader in the hopes of selling you more volume at a lower margin or selling other products to you. They may take your business at a loss in a down economy to drive cash flow in order to just keep going. They also will take actions during the next year or two to drive their internal costs down. All of these circumstances and more mean that there is potentially more compression on the table the next time around. The why is actually pretty simple? Your new supplier wants to keep the business and the relationship, your old supplier wants their business back and other suppliers want new accounts.

There are many other benefits to running these auctions again and again. New products offerings with better features, new suppliers that you are not aware of, suppliers you strategically did not invite the 1st time, existing products with new technologies and quality improvements to name a few. To support this, don’t sign contracts for periods of longer than two years or you will be paying too much by contracts end.

If your e-procurement solutions provider knows what they are doing, reverse auctions can and should become a long term tool in your procurement tool box.

We all know that the consistent hitting of singles and doubles wins more games. In fact a grand slam can’t happen unless there are already runners on base.  If you want to hear more about how to succeed year in and year out with this process, please contact SafeSourcing.

We always appreciate your comments.

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Part III of III. There are all types of reverse auctions.

Friday, December 16th, 2011

I like these types of words. Vickrey has a certain ring to it doesn’t it? In fact there are so many types of reverse auctions that we can’t deal with them all in a single blog. Some of the other types beyond the reserve price auction we have already discussed in this series and the Vickrey we will discuss today are English Auctions Yankee Auctions, Dutch Auctions and many more. Each type of auction evolved to be used for different type of purchasing.

I like the premise behind the Vickrey auction because of the gaming discipline that psychologically encourages bidders to keep fishing or playing. To this author what is important in today’s e-procurement platforms is that all features of all auction types ought to be available for use within a single event. By this, I mean we should be able to use all features of any auction type within a single event. An example might be using deciles, market baskets and units as a framework for a single event and have the flexibility to apply any feature such as reserves, ranking, indices, extensions and any other feature to each as well as each line item within an area. This flexibility drives the best possible savings for the host within one event.

Now back to the Vickrey.

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.

Because there are so many types of reverse auctions it is important to develop an individual strategy for 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.

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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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Getting to know your specifications.

Friday, June 17th, 2011

Here is a challenge: Pick a product that you purchase and write out a specification. Be specific and include components and peripherals. Take it a step further and write down how many and how often you purchase. Finally, what is the price you are currently paying for this product? Is that the same price you agreed to pay when at the beginning of the contract?

This exercise may seem basic, but this knowledge is a vital component of the procurement process. Here is a list of potential red flags that may mean it is time to research your products.

     1. All of your product data is in the form of a vendor invoice.
     2. You are uncertain of your order volumes or frequencies.
     3. You have been placing the exact same orders for years.
     4. Your pricing fluctuates often.

Be honest with yourself; is there room for improvement in product knowledge? I would encourage you to reach out to your strategic sourcing partner for suggestions. Aside from dollar savings results, you will also benefit from having a complete set of product specifications, vendor information and more at the completions of your strategic sourcing process. 

For more information on SafeSourcing and how we can assist with this process, please contact a Customer Service Representative for more information.

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’s up? Is it possible to save money on anything in this market?

Wednesday, May 18th, 2011

If you had the tools to check all of the market indices, they are all up or headed up. Fuel, pulp, resin, metals, beef, grain and the list goes on. Many are up double digits over the last year and headed higher still. As such, your suppliers will be increasing their prices to you.

It is in this environment that procurement professionals are being asked to take cost out of the business or at a minimum hold costs flat. The question is how?

To begin with, even in up markets there remains significant opportunity for cost reduction and other savings. This does not apply to every category or to every product within a category, but there are opportunities.

Here are some things for procurement professionals to consider as they embark on this journey. All of these can provide clues that will help you map your way through today’s markets.

1) Review the last time all products or services were sourced in detail?
2) Review the dates on all current contracts?
3) Are there additional suppliers that are interested in your business?
4) Review all Terms and Conditions to uncover hidden opportunities.
5) Have your volumes increased or will they?
6) Will a longer term increase discounts?
7) Leverage freight and shipping terms? 
8) Use indices and escalator language to control price increases.
9) Understand what drives the pricing of the product or service you are buying.
10) Aggregate your volumes with other companies.
11) Reach out to procurement providers that have the expertise to help you.

If you can’t come up with at least another 10 items to add to this list of more than 3 of the items above did not occur to you, it’s time to reach out for some help.

The reality is that prices are always going to go up over the long term. The other reality is that there are companies that are still saving or holding costs. The reason is because they plan better than most and ask for help when they need it.

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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