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.net spot fuel or rack rate updates.. 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.
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Archive for the ‘Online Reverse Auction’ Category
A customer asked me what a reserve price reverse auction was today.
Friday, January 29th, 2010Twenty steps to running high quality retail e-procurement events.
Tuesday, January 19th, 2010These sessions can from time to time also run as forward auctions? in order to reduce over stock conditions and reduce shrink or event to discard of old properties. Regardless of the naming convention used there are certain rules which if followed will create higher quality E-RFX?s for the retailer and their suppliers? This will result in creating better savings opportunities or cost avoidance in a tough market.
The importance of focusing on a clear process will increase E-RFX participation. This focus on quality will be recognized by your existing trading partners and potential new sources of supply, and will keep them coming back in the future to compete fairly for your business.
Here are twenty to begin with. I?m sure you can add others or refine these for your use.
1.?Executive sponsorship is mandatory
a.?This is required at the CEO, CFO, CPO, CLO or head of the supply chain.
2.?Get the entire buying organization together for a kickoff session.
3.?Provide an over view of what you are going to do and the impact it can have on the company. Use company financial models.
4.?Discuss and agree on success criteria.
5.?Every event is not a homerun. Singles and doubles score runs.
6.?Create a fun environment.
7.?Consider prizes for the most creative use of an auction.
8.?Use scorecards by department with percent of savings.
9.?Discuss the meaning and importance of corporate aggregation.
10.?Hand out E-RFX templates to gather existing product specifications.
11.?Put a time requirement on data collection.
12.?Gather an accurate list of your present suppliers.
13.?Work with your sourcing company to identify a top 100 list of events.
14.?Calendar the events.
15.?Prioritize by dollar value, date and strategic value.
16.?Conduct department level discovery meetings of 30 minutes to an hour.
17.?Investigate existing contract language.
18.?Look for auto renewal (evergreen) language roadblocks.
19.?Determine alternate sources of supply with your sourcing company.
20.?Develop an E-RFX rules and instruction template and post with each event.
Although this list is not all encompassing, it provides a format for getting started that offers the best opportunity for reduction in cost of goods, expenses and improvement in corporate earnings. Be sure to combine this with a business partner that understands your business.
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We appreciate and look forward to you comments.
What consitutes a complex e-negotiation event or reverse auction.
Thursday, January 14th, 2010Definitions are often tied to the concept of a set of parts or elements which have relationships among them differentiated from relationships with other elements outside the relational regime.
So how does one define a complex e-negotiation event? On the surface it may be an event with a large number of line items within a particular product set such as generic drugs in the retail space or raw materials used to manufacture components that require special handling, shipping and standards adherence.
This author would suggest that any event including multiple line items each with different specifications, order quantities, delivery locations, multiple suppliers not bidding on each line item, a split award of business and the size of the spend qualifies as a complex event. Adding to the complexity may be the overall strategy required when sourcing the right mix of suppliers to compress pricing properly and drive early and consistent bid activity…
The above example would qualify as organized complexity where there is a non-random, or correlated, interaction between most of the parts. In order to support? complex events, your supplier needs to have an understanding of the specific market place and practices and processes in place that allow these activities t bring complex events to market? in the shortest period of time. Generally this should occur within less than two weeks from event notification to event completion.
In a two part post from October of 2008, this author tried to define the relative complexity of the retail environment and its potential impact on the use of e-procurement tools. Specifically we identified the following areas of interlocking complexity.
1.?Supply Chain complexity.
2.?Rate of change in the global supply chain.
3.?Long term inherited supplier relationships.
4.?Lack of retail procurement staff.
5.?Lack of time.
6.?Multiple sources of supply.
7.?Limited view of new sources of supply.
8.?Confusion as to who?s the customer and who?s the supplier
Being comfortable that your solution provider understands your market place and has a well defined process for hosting Complex e-negotiation events insures that they are not difficult to host.
We appreciate and look forward to your comments.
Creating a sustainable e-procurement or reverse auction program is based on more than just savings.
Tuesday, January 12th, 2010Primary success in e-procurement programs such as reverse auctions of which there are many types is in many cases measured by cost reductions. That?s because within a budget period they drop directly to a company?s bottom line plus or minus some switching costs. On more than one occasion I have heard; ?did we hit a home run?? Less emphasis seems to be placed on cost avoidance in an up market and creating a sustainable process. This often results in less spend be assigned to these very effective tools then should be.
In order to ensure that results are sustainable; the strategies for all targeted e-procurement categories require consistent deployment across all departments throughout the host company. This is accomplished by utilizing a well planned repeatable process for category selection and discovery, supplier selection, and a solid strategy that is well understood by all buyers and category managers for negotiation and the award of business process.
Supplier selection and management is a critical stage that requires the understanding and participation of all sourcing professionals within an organization. One small mistake by anyone within the procurement or supply chain organization could negatively impact the potential results of an e-procurement event. Historical long term relationships that drive behind the scene comments like; ?don?t worry we?ll be fine? to a long term supplier may drive inappropriate bid behavior and lack of ongoing credibility with your program. Not to mention the potential legal implications.
If you are not having the results you would like to or have less than twenty percent your total corporate spend assigned to e-procurement tool?s that are offered in the form of? Software as a Service or cloud computing, ask your provider why?
We appreciate and look forward to your comments
Why is the use of reverse auctions by retailers up?
Monday, January 11th, 2010From mid tier one retailers on down the use of reverse auctions has been very limited since their inception at the end of the 1990?s. The reason is because there was very little focus on the retail segment and the tools were also very difficult to use and expensive. If retailer?s think a tool is so complicated that they can not do it themselves, they won?t use them.
We are seeing a small uptick in e-negotiation tools in retail and this author believes that some of the following quotes from the folks watching a 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?
So what does this all mean for retail procurement professionals? It means that 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.
This all adds up to a focus on retailers entire spend both indirect and direct as well resulting in increased utilization by middle market and large retailers alike.
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.
SafeSourcing Website experiences significant traffic growth.
Thursday, October 22nd, 2009During the last ninety day period the SafeSourcing website www.safesourcing.com has experienced significant growth globally. According to a number of rating services including Alexa and Google Analytics our website has had visitors from thirty seven (37) countries. Our reach which is a percentage measure of global internet users has grown 130%. Our traffic rank has increased 168% and our page views have increased 150%.
This growth places us amongst the top websites in the procurement space. Spend Matters and Sourcing Innovation continue to be the ranking leaders in our space. Both are required daily reading for this author.
We are very proud of our growth as it indicates that SafeSourcing is providing valuable content to regular visitors as well as registered members. We are also enjoying a good mix of both returning and new users. In reviewing these data the entire website is being explored on a regular basis including the following areas.
1. Sourcebook our professional social network for procurement professionals.
2. The SafeSourcing Wiki
3. The SafeSourcing daily Blog
4. SafeSourcing environment and safety alerts
5. SafeSourcing specifications template library
6. The SafeSourceIt? Supplier Database
7. The SafeSourcing Query tool
8. SafeSourcing Product Information Sheets
9. SafeSourcing White Papers
10. SafeSourcing Press Releases.
Thank you to those of you that have allowed us to achieve this growth.
As always, we look forward to and appreciate your comments.
