Add commentFebruary 27th, 2006Agatha Degasperi - Iasta Europe
As a follow-up to Part I of unethical behavior during online auctions, I would like to point out a few other areas to watch out for to continue to ensure your organization’s success.
1) Internal Politics - What do I mean by this exactly? Basically, it means ensuring that every stakeholder is fully on board before initiating an online auction exercise. When you don’t have the complete buy-in of internal stakeholders, you risk sabotaging the event before it even starts. Some scenarios that could arise as a result of lack of buy-in from internal stakeholders:
Initiate online auction exercise with suppliers and end it half way through
Complete process up to preliminary bids and then call it off
Complete entire process, but do not follow through on results due to inability to implement results
“Privileged” communication with incumbent revealing that they don’t need to take the process seriously
Any of these scenarios will cause suppliers to question the validity of your internal processes, will give incumbents the upper hand as they know they never have to take your auctions seriously, will decrease the number of future interested participants, and will further detriment the effectiveness of e-sourcing as a negotiation tool for your organization.
2) Pre-auction negotiations with incumbents: Besides this not respecting the guideline that bidders will be treated equally, also consider here that if your incumbent is willing to significantly reduce their price in order to not go through with the auction, just imagine what the others can do during the live event.
3) Accepting offline quotes: it must be clearly stated that if a supplier wants to be considered for business, they must submit their prices online; otherwise it defeats the purpose of what you are using the tool for. However, in situations where a company flat out refuses to take part, but are a critical supplier for you, then consider creating bid submission documents that allow them to sign a faxed sheet with the best and final bid understanding that that those prices will be submitted into the auction on their behalf.
3) Post-auction price negotiation: unless explicitly stated in the RFQ, do not get in the habit of trying to further drive down prices after the online auction. The understanding from both parties is that all prices are legally binding, and the suppliers cannot try to increase their prices post-auction, and the buyer can’t try to decrease it. Remember that through the use of strategic pricing parameters (i.e. ceiling prices, starting prices, qualifications prices, etc…) you can protect yourself in the event that prices do not reach your target.
While there are many factors contributing to the success of an e-sourcing program, I strongly believe that ethics should be high on that list. It’s often taken for granted, and not given the full attention it deserves. It doesn’t take much time to create a set of internal guidelines and ensure that all parties comply. You will see, the benefits in the end will be worth it!
Recently, Procuri made an interesting strategic hire by pulling Tim Minahan from Aberdeen. Procuri’s CEO, Mark Morel, was quoted on Spend Matters, which you can read here. Whether we believe his statements or not, it is critical that everyone realize that Tim is bringing over a wealth of competitive insight into his new role, even if he does not share competitive secrets he received under NDA. This is not a personal issue — I would be much more upset if I were Ariba or Emptoris, for instance. Tim knows plenty about Iasta, but little compared with what he knows about the high-priced heavyweights and their future directions and strategies, who have more time to dedicate to working with the analysts. Also, we can all agree that the shelf-life for competitive knowledge is pretty limited in such a fast moving industry.
Regardless, Tim going to a vendor means that a gold mine of insider knowledge – even if he opts not to share it explicitly with his new company – will go with him. This brings my attention to what I like to think of as the Analyst Paradox. To wit, vendors need analysts to promote their value proposition and perspective. But in the process, they give up truckloads of information and are often pressed during briefings to answer very sensitive questions which can then be re-sold to direct competitors as market insight (this happens all of the time in competitive private studies the analyst firms do for clients). It is a very tough call on what to do because these companies can offer a lot of help and attention. But the question is…at what price?
Add commentFebruary 22nd, 2006Sean Delaney - Iasta UK
Day 2 complete and yet again the Hackett Group’s key note speech gets top marks from the delegates.
Unfortunately the CIPs (Chartered Institute of Purchasing) Lunchtime Keynote session “purchasing and technology for the 21st Century Business Environment” came in for the most criticism as “unimaginative”. The last comment after no questions were asked was “did I leave anything out?” Another delegate suggested that there had been of rush of technology into the purchasing function and it has clearly left CIPs feeling uncomfortable.
CIPs is playing catch up in this market place which is disappointing since they are marketing themselves as the key network for purchasing professionals. They need to start talking to the esourcing providers who are talking to the decision makers.
Well that’s it until September so if you want attend Europe’s premier eSourcing event visit Revolution Events and register for the September 2006 Show – look forward to meeting you!
Add commentFebruary 21st, 2006Sean Delaney - Iasta UK
First day at eWorld and it’s been busy. A delegate informed me that a local branch of CIPs (Chartered Institute of Purchasing and Supply) held a seminar recently asking….”Reverse Auction Fact or Fiction”. After today’s responses I can safely say, it is definitely Fact!
The event opened with a Barn Storming performance from The Hackett Group. Loads of slides with up to date industry analysis which left some of the delegates for dead! However the basic theme was that purchasing departments must get the processes right before engaging the technology and this theme continued through the day in a number of seminars.
I am not sure I agree as a multi-layered approach will create results far quicker, i.e, run auctions on categories you understand, create the traction and as a default the software will create the processes for you. Too often the focus is on process and we lose site of the ultimate goal which is saving money.
Another common subject discussed today was “beyond eAuctions” or “beyond eProcurement” which in my opinion is extremely premature. The market is clearly evolving at a break neck speed but many of the delegates are being left behind and have yet to reach first base. As one of our regular blog visitors said to me today…”if I have £1000 to spend on learning to play golf I would rather spend £800 on lessons and £200 on equipment than spend £1,000 on equipment and not know how to play” (Strategic Category Manager for Abbott Laboratories).
Tomorrow I will be posting quotes from delegates over the 2 days.
This was originally written in early January but I decided not to post due to the amount of sensitive knowledge I had at that time. Here is the original transcript.
A little over a month ago, I wrote a blog about a highly respected e-Sourcing vendor meeting an unfortunate demise. Since I have now run into this information from 4 different sources including industry veterans and various large corporations, I have decided to make the official unveiling on E-Sourcing Forum. The winner is…MINDFLOW.
This is the same company that has been routinely touted as a leader and “visionary” according to numerous articles and expert analysis such as the Gartner Magic Quadrant.
I like the Mindflow guys, they seemed very knowledgeable and had some interesting functionality but I always had trouble pinpointing who their paying customers were. This micro-information is really a testament to a larger picture - Does Venture Capital equate to business model success? Obviously not always, if a company widely considered a leader of an industry cannot sustain its own operations after years of accolades.
At least $10 million VC dollars and unknown negative cash flow from revenue was spent to get to this point and now assets are being acquired for pennies on the dollar. This is, of course, is no surprise when one remembers classic flame-outs such as Webvan or Pets.com. Those were bad ideas, though. Mindflow had well respected technology and boasted high profile clients, so where did the money go? How can a business not succeed with everything set up in its favor? Was Sourcing Optimization really so pioneering and bleeding edge that there was no sufficient revenue?
Here is the application of knowledge…make sure when evaluating potential e-Sourcing vendors that they can execute on a business plan and have a way to make money and stay in business (ironic for auction companies, eh?). What is the purpose of investment capital? For the receiver, it is to fund extra resources to make the model successful. For the investor, it is to make money. There is no other outcome. If investors get tired of waiting, they will pull the plug and cut bait. If the business is starting to hum, they will liquidate their ownership to capture the profit. Its a fools paradise to think that the customers will always benefit when the exit strategy is ultimately achieved, however, sometimes it does make sense.
A Mindflow acquisition will be completed and released soon (no longer a real secret). Time will tell if the new owner will be able to execute on the original plans that Mindflow could not. Sourcing is difficult enough to support correctly and when you add in the enormous complexities of Optimization and vertical expertise…get ready for a potential grease fire, no pun intended. Even if the company does have expertise, mergers are never easy and take quite a while to effectively integrate, if they ever do, especially in a niche that is still considered a few years ahead of its time.
There are very obvious and well documented reasons for e-Sourcing, both by me and others. This does not mean it is without its challenges, however. Implementation and continued usage are bound by some fundamental factors:
Executive support is critical, many times this should be tied to performance metrics and bonuses or top level edicts for spend level requirements. One of our clients has made bids over $50,ooo mandatory to be bid through SmartSource.
Quality training is important for those in the trenches. If a tool is difficult to use and is combined with lack of quality training, the value of the tool will lose its momentum.
Lack of understanding the deployment requirements will also hinder acceptance. It is important to have a plan for usage within the organization and this can be done independently or with the help of the vendor, who likely has extensive experience with tested experience.
No quality spend data is another obvious issue and has far reaching implications. The best sourcing automation tool will only be as effective as the data that is know and visible.
Every company is unique and can have these issues or combination thereof. Forward thinking about overcoming these early can make success much easier.
Add commentFebruary 14th, 2006Sean Delaney - Iasta UK
Off to the bi-annual show in London next week. The eWorld Purchasing Supply Show is the premier eSourcing show in the UK and possibly Europe. It looks like being one of the most informed shows to date with the key decision makers from every Industry attending.
The show will be in a similar format to last year with a key note speech in the morning followed by several presentations throughout the day. Iasta will be exhibiting on stand 24 so if you want a demo or would like to give us direct feedback on our blog then come along and introduce yourself. If you can’t make it I will be posting a regular update here over the 2 days of the show.
I was playing around with one of my favorite useful sites recently, Wikipedia, and decided to investigate the depth of the supply chain knowledge base. I was planning to pen a few descriptions but to my surprise, it was almost completely comprehensive. For those not familiar, Wikipedia is a user community driven encyclopedia which is 100% self monitored and built. It is sort of like open source meets Britannica and now boasts 3.8 million articles in 100 languages. I thought these were useful for our forum:
We use Wiki’s here at Iasta for many different reasons as a collaborative intra-office tool and they are very cool usages of technology. I will be thinking about other industry terms to see if I come up with some worthy of posting in the future. Since this is an open community, all definitions are under continual review and any one is welcome to add clarity to the source file. It is a fascinating site.
Hmmm…an article about reverse auctions and usage but no mention of Iasta? Sounds like more research was needed. But seriously, some good points are made on the usage and best practices of reverse auctions. There are still many companies jumping into the usage with both feet and this will only continue to happen as the mid-market ($250mm-$1b turnover) embraces this technology. However, there are also auction veterans that are looking for ways to continue increasing the value of e-Sourcing and discovering TCO with advanced tools such as Bid Optimization and Supplier Analytics. The market is splintering into groups that want to begin e-Sourcing and those that want to advance deeper. The key as a vendor is to provide an easy to use solution that is extensible for the future.
I recently did quite a bit of research on the state of eSourcing optimization technology, and came away impressed with how far the vendor community has come in the past few years. But while a good number of providers now offer optimization capabilities (including Iasta), I have a feeling that from an adoption standpoint, users are significantly lagging behind the optimization tools that they now have available to them. In fact, I’d wager that less than 20% of procurement organizations understand the power that optimization can bring to their negotiation arsenal, and far fewer know when to apply the right technique, and under what condition. In the next few months, I hope to change this by blogging quite a bit about how optimization, reverse auctions, and other negotiation techniques can work together (sometimes even in the same category, or even the same event). But for now, it’s critical to remember that this is not an either / or situation. I strongly believe that optimization and reverse auctions are not mutually exclusive techniques. If anyone tries to tell you that optimization is a replacement for direct, competitive negotiations (either face-to-face or via reverse auctions), I believe they’re speaking out of self interest. There’s a role for both.
I recently recieved a newsletter from Aptium Global, a direct material consultancy group out of Chicago that focuses on the Lower Middle Market. The following is copied from it:
“Speaking of reverse auctions, I have found that many Lower Middle Market firms are hostile to the notion. And I don’t entirely understand why. Most Lower Middle Market firms still have tremendous savings opportunity because they have rarely introduced any competition into the sourcing process in the past. I’d say that in 90% of cases, their incumbent suppliers are taking advantage of their ignorance when it comes to benchmark pricing. This is a shame, because it has been my observation that Lower Middle Market firms typically have anywhere from 3-5 categories that are large enough to source using competitive negotiation technology (e.g., reverse auctions, optimization, etc.). Perhaps the greatest irony is that Lower Middle Market firms are only now beginning to take advantage of these approaches, despite the fact that their customers, Fortune 500 firms, have been requiring them to participate for years. And don’t ever tell me that small organizations can’t use reverse auctions. I’ve personally run reverse auctions for a $5 million industrial company with great results, and received little or no push back from their suppliers.”
I agree with Lisa Reisman and think there will be a growing interest from this group in 2006.
One of my favorite purchasing bosses would often say…“what gets measured, gets done.” Over my many years in purchasing, I found very few statements more profound. Seems like purchasing professionals always have more “battles” than they could possibly fight, so having clear direction communicated by a performance dashboard not only helps drive consistent purchasing team behavior, but also, executive understanding of the value purchasing delivers to the organization.
This adage also holds true in the area of e-Sourcing, where most executives quite frankly…“don’t know what they don’t know”. This area of purchasing is still so new that most senior executives don’t have an “intuitive feel” for the value e-Sourcing delivers, and an effective dashboard can help educate the executive types. Just communicating piece price savings for various commodities run through your e-Sourcing platform isn’t enough to drive the right behaviors and instill the right culture.
Now that you are warming up to the concept of communicating key performance indicators (KPIs) for e-Sourcing, what do you measure? Since the dashboard will become highly visible to senior executives, you must select the right metrics to communicate e-Sourcing successes and opportunities for improvement. Ah, the pressure mounts.
Fortunately, your e-Sourcing solution provider has tremendous experience in this area and your provider is likely working with companies in similar industries with comparable company cultures which came help you to “win-over” your senior management team. Whether it is RFQ cycle time or spend consolidation with preferred suppliers, your e-Sourcing solution provider can definitely help you. Don’t re-invent the wheel.
In sum, if you’re contemplating a purchasing dashboard to support e-Sourcing efforts, I’d recommend the following basic guidelines:
• Might seem like common sense, but focus on business needs first, not the enabling technology. Occasionally, an Excel spreadsheet with a couple of charts is all you need.
• Only focus on the “vital few” metrics (the 4-5 metrics that really make a difference to the business, and tell the e-Sourcing story).
• Ensure a Chief Procurement Officer or top purchasing executive is willing to act on the results communicated by the dashboard.
• Develop a culture of measurement and accountability. You may need to change the culture of your purchasing team to do so effectively.
• Install a mid-level procurement manager (at a minimum) who can drive dashboard development and continuous improvement.
• Know what you need to measure; be user-focused. In this case, the “user” is typically senior management (but the dashboard must be understood by your purchasing team).
Good luck, and remember, “publish or perish!”
Ken Jones is the Director of the Supply Chain Management / Sourcing department at Ivy Tech Community College and has worked many years in professional procurement positions at companies such as Rolls Royce, Ford, HP, and Roche.
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