Archive for the ‘Reverse Auction’ Category

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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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Here are twenty steps to running high quality retail e-procurement events.

Wednesday, February 23rd, 2011

There are well established processes which when followed will create higher quality sessions for the retailer and their supplier partners, resulting in better savings or cost avoidance dependant upon the category and market condition.

Although brief, the list below provides a good framework by which to build your program and should get you headed in the right direction.

1.?Executive sponsorship is mandatory by the CEO,CFO and or the COO
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 event 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 event rules and instruction template and post with each event.

Although these steps are not all encompassing, they provide a format for getting started that offers the best opportunity for reduction in capital expense, cost of goods, expenses and improvement in corporate earnings.

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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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.

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Just what is a reverse auction? Be careful the answer is not that easy.

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.

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E-procurement.What?s in a definition?

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.

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E-procurement.What’s in a definition?

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.

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Retailers; how much are you really saving with reverse auctions and other e-procurement tools.

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.

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Are retailers still using reserve price reverse auctions any more?

Friday, July 30th, 2010

A reserve 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. Quite often retailers just rely on their existing or current price from their last contract. If careful thought is not given, this may in fact create an unreasonable expectation that results in less participation from prospective suppliers, particularly if the market has changed dramatically in an upward direction since the last award of business. You have to be very careful that once a reserve is met that suppliers will stop bidding because you have already indicated your desire price point.

In a reserve revere auction 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. This can also add risk to the participation level of suppliers. 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. Most reverse auctions today include terms and conditions that protect the retailer from awarding the business whether the reserve is met or not. This author would caution that if you are just trying to collect prices to analyze market conditions, tell the suppliers up front. If you set a reserve plan to award the business.

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, Platt or Gulf Coast. 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 don?t see reserve auctions to often anymore, but understanding the different types of formats and tools available to you and assessing them in your event setup for their potential impact can add to the quality of the data collected and the event itself.

We look forward to and appreciate your comments

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