Andrew Bartolini Interview - Part II

Add comment February 26th, 2007 David Bush - Iasta

This is the second installment of our interview with Andrew Bartolini from Aberdeen. He takes some time to answer detailed questions about the supply management marketplace, adoption/traction and future. Thanks to Andrew for spending time to participate.

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1. The Benchmark report indicates that many companies still do not use e-Sourcing strategies. From our anecdotal experience, many are averse to auctions and don’t want to use them for fear of encouraging their own customers to use them. How do you respond to these companies?

In spite of a clear and proven value proposition, certain enterprises have resisted utilizing eSourcing as a standard business process. I think part of this is due to the hangover from the early “reverse auction” days where a lack of acceptable business practices and technologies with severe limitations enabled buyers to use these tools as a battering ram to beat down their suppliers. When I was at Commerce One, we spent a great deal of time and energy educating procurement organizations on best practices (level playing field, apples-to-apples bidding, etc.) sometimes to no avail. While most played fairly, abuses occurred and left a bad taste in the mouth of many a supplier. It is why for many years “auction” was a four-letter word in this industry.

But we’ve come a long way, acceptable (read: clear and fair) eSourcing business practices are widely understood and employed and best of all, today’s eSourcing technology is really robust. The functionality has really progressed in the past 6-7 years.

For those companies that have resisted eSourcing, the sad fact is that they are at a competitive disadvantage to their competitors. Don’t want to conduct an auction? Fine, but you can use eSourcing for “sealed bid” events and leverage technology to streamline processes and perform superior bid analysis.

From a supplier perspective there are many benefits to participation including .

• Shorter sales cycle with an automated the RFQ process
• Access to new markets & new customers
• Lower barriers to entry
• Greater competitive information
• Clearer insight into market pricing (New and timely information on state of the market)
• Ability to leverage excess/idle capacity

As I write that last section, I feel like I’ve gone back in time to circa 2000…..

2. The Benchmark report indicated that there is a trend of lower identified savings via standard e-Sourcing strategies. Does this mean that companies just starting to initiate e-Sourcing should worry about reduced savings?

I believe that the trend towards lower savings is indicative of a case of diminishing returns found in the second and third eSourcing cycles of certain commodities. Let’s be clear, used properly eSourcing can enable superior price discovery and enhanced savings (compared to legacy offline processes) by offering a more competitive bid process, it does not change true market pricing. Suppliers participating in eSourcing events may sharpen their pencils, but they rarely check their cost structures at the door.

3. Many sourcing teams primarily run simple, e-Sourcing projects. Can bid optimization (decision analysis) technology help them?

Because it is an under-utilized strategy, I think it first makes sense to offer a definition - Bid optimization uses advanced analytical tools to simultaneously negotiate and evaluate complex bid structures against a wide range of interdependent sourcing objectives, variables, constraints, and scenarios. In plain English (and as it relates to eSourcing) – bid optimization enables buying organizations to evaluate often complex bid information against a set of criteria to make the best award decision. At some level you can employ bid optimization with less complex eSourcing events with few data points, however, the real benefit to enterprises is the ability to conduct complex eSourcing events with multiple bid inputs to make your decision. For those readers with a financial background, the modeling capabilities of bid optimization engines today match and in some cases, exceed what can be done in Excel. The ability to incorporate a much broader set of evaluative criteria means that you can use eSourcing for a much greater number of categories

4. Of all the e-sourcing techniques you covered in your report (a) which techniques seemed to be the most common and (b) which technique(s) are not and (c) which seem to deliver the most significant improvement after introduction.

a. We are certainly seeing greater usage of non-price factors in utilized in award decisions and a higher number of events focused on total landed cost. Scoring (Team or Automatic) which may be used in events that I described in the previous sentence is widely used. I personally do not consider it an advanced strategy but the use of multi-stage events is becoming more commonplace.

b. Commodity hedging and NPV or other financial modeling are rarely used; supplier alternative bidding also has limited traction.

c. Our research shows that bid optimization, matrix or tiered pricing, and scoring deliver significant improvement. Our research also shows that most enterprises use these strategies rarely, if at all.

5. Bid optimization technology seems too complex for the average Sourcing Professional to use. Is this true? Does one need a PhD to effectively use bid optimization technology? Do you think advanced sourcing optimization is being used well yet? Is it still ahead of the curve for most companies?

Our latest report shows that bid optimization is successful when employed but very under-utilized.

As my predecessor once noted, ‘these are not your father’s eSourcing applications.’ The capabilities within many eSourcing applications are quite astounding. This means however that there are many moving parts that may appear complex to an occasional user. For a power user or someone who is well-trained, the applications are generally intuitive and very buyer-friendly.

Best in class enterprises have passed the adoption challenge and can now focus on optimizing their processes and on using advanced strategies.

However, most enterprises are still smack-dab in the middle of the adoption cycle (and it has been a long one) and lack the internal expertise to utilize bid optimization.

It is my view the time is now to start using bid optimization and other advanced sourcing strategies more aggressively. Best in class enterprises have the capabilities to do so and are doing so….. For the average enterprise, leveraging external expertise is a great way to start, I also highly recommend centralizing your eSourcing capabilities to work your way up the learning curve as quickly as possible.

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David – Thanks for another opportunity to discuss The Advanced Sourcing & Negotiation Benchmark.

Happy blogging,
Andrew

Entry Filed under: Analysts/Research, General, Interviews, Optimization, Reverse Auctions, Supply Management Best Practices