Presentation is loading. Please wait.

Presentation is loading. Please wait.

L. Giunipero, Ph.D. copyright 2004 E-Procurement Tools and Reverse Auctions for Sourcing Services By Larry C. Giunipero, Ph.D., C.P.M. Florida State University.

Similar presentations


Presentation on theme: "L. Giunipero, Ph.D. copyright 2004 E-Procurement Tools and Reverse Auctions for Sourcing Services By Larry C. Giunipero, Ph.D., C.P.M. Florida State University."— Presentation transcript:

1 L. Giunipero, Ph.D. copyright 2004 E-Procurement Tools and Reverse Auctions for Sourcing Services By Larry C. Giunipero, Ph.D., C.P.M. Florida State University ISM Professor of Purchasing & Supply Chain Management Northeast Supply Chain Conference September 19-21, 2004

2 L. Giunipero, Ph.D. copyright 2004 E Promise 1999-2000 ► The Dot Com era ► Lots of Hype ► Soaring equity prices value is dead ► Lots of venture capital thrown at e-Business ► Many new startups ► All kinds of activities

3 L. Giunipero, Ph.D. copyright 2004 Ebust 2001-2002 ► The Dot Gone or Dot Bomb era ► How low can the stock price of your favorite go? ► Many have gone bankrupt ► Survivors are struggling ► Prices are falling for more powerful solutions to generate cash ► Accounting scandals shake confidence

4 L. Giunipero, Ph.D. copyright 2004 Dot back 2003-2004 ► Selective e purchasing practices grow in use ► Survivors stronger and pricing competitive and promises more realistic ► Selection standards are strict and final selection very detailed require tangible returns ► E Tools and systems continue to grow in sophistication

5 L. Giunipero, Ph.D. copyright 2004 There is Hope! Organizations are moving to e Purchasing Forrester’s data and others show this There is a lot of internal work in developing buy side systems or internal portals Internal requisitioning systems Visibility into suppliers inventory Business rules to support the buyer

6 L. Giunipero, Ph.D. copyright 2004 Technology is the Enabler of Change ► Moore’s Law – Every 18 months computing power doubles while cost stays constant. ► Metcalfe’s Law – The utility of a network is equal to the square of the number of its users. ► Coase’s Law- As costs decrease, the complexity of a firm diminishes. Size is a function of the complexity of transactions

7 L. Giunipero, Ph.D. copyright 2004 G’s Technology & System’s Law ► It will always cost more than promised ► It will do less than promised ► It will take longer than promised ► But it will still provide advantages if it is properly selected and implemented ► It will move supply management forward

8 L. Giunipero, Ph.D. copyright 2004 Sourcing processes and technology have evolved considerably over the last two decades while procurement has gained greater importance within corporations. eSourcing eProcurement Web Services Purchasing Manual Fragmented & tactical Project Management MRP, MRPII, EDI, ERP Strategic Sourcing Strategic Procurement Electronic Procurement 1980s 1990s2000s  Importance within Corporations Drivers behind the evolution from Purchasing to Electronic Procurement include: Lower Transaction Costs Lower Information & Searching Costs Shorter Cycle times Market Prices Source: Global eProcure

9 L. Giunipero, Ph.D. copyright 2004 Organizations have successfully used eSourcing for the procurement of materials and operational goods over the last few years. Open competition among bidders leads to an additional savings of 15% on average Price Reduction Reverse Auction process reduces supplier negotiations time by 50-75% (from weeks to hours) Sourcing Cycle Time Reduction Automated evaluation of suppliers is done using online tools Improved Ability to Evaluate & Analyze Suppliers All buyers use similar process and learn from best practices Standardize Sourcing Practice Across Organization Source: Global eProcure

10 L. Giunipero, Ph.D. copyright 2004 Defining e Purchasing plus a process and set of tools that Purchasing/supply management professionals employ to streamline processes and leveraging technology in order to meet the needs of the organization.

11 L. Giunipero, Ph.D. copyright 2004 What is e Purchasing plus? Process Change Technology Tools Integration Plus (strategy,skills)

12 L. Giunipero, Ph.D. copyright 2004 Process and People ► “The crucial ingredient to B to B success isn’t technology it’s human” Andrew Brooks 2001 ► Our main finding put simply, is that the central issue is never strategy, structure, culture or systems. All those elements and others are important. But the core of the matter is always about changing the behavior of people, and behavior change happens in highly successful situations mostly by speaking to people’s feelings. Feelings then alter behavior sufficiently to overcome all the many barriers to sensible large-scale change John P Kotler, The Heart of Change

13 L. Giunipero, Ph.D. copyright 2004 Process Analysis and Uncoupling ► What is the current process? ► Is there value by using third parties ► Can we reduce the amount of space or time in the process ► Most supply management processes involve at least three parties. (supplier, buyer and process owner) ► How can technology enable the process?

14 L. Giunipero, Ph.D. copyright 2004 eSourcing Landscape Strategic Tactical Internal External ----- Reach ----- ----- Value ---- e document exchange Reverse Auctions Intranet Resources e settlement e-catalogs eVMI e requisitioning e exchanges and “hubs” “Buy side” portal Complex bid optimization p card / e p card “expressive” competition e RFX Source: CombineNet

15 L. Giunipero, Ph.D. copyright 2004 e-Tools Terminology ► Reverse Auctions ► Sourcing Optimization ► Collaboration  CRM  SRM ► Cataloguing and Content

16 L. Giunipero, Ph.D. copyright 2004 Reverse Auction Definition ► Electronic bidding event held in a secure environment which allows buyer to simultaneously engage qualified sellers to bid their requirements in an interactive real time environment. The process creates a more efficient marketplace and shortens buyer’s cycle time from quote to award.

17 L. Giunipero, Ph.D. copyright 2004 Reverse Auction Environment ► Costs are driving organizations ► On line competitive bidding format ► e Bay is a familiar auction site ► Buyer’s offer and seller’s respond ► Prices decline over the course of the auction ► Time duration varies ► Prices are transparent

18 L. Giunipero, Ph.D. copyright 2004 Reverse Auctions ► Technology tool to streamline the bidding process ► Involves several phases of preparation ► Internet based technology ► Scheduled day and time ► Secure environment for suppliers ► Sellers don’t know who they are bidding against ► Sellers see the prices of their competitors ► Pricing occurs in a real time environment

19 L. Giunipero, Ph.D. copyright 2004 Reverse Auction Activity ► $192 Billion in 2001 ► $350 Billion in 2002 ► Growth 84% 2002 over 2001 ► $600 Billion in 2003 ► Growth 312% 2003 over 2001 ► Savings Vary - one report 18% on $1.5 billion spend 417 events 869 auctions Sources: IDC Research & Pantellos

20 L. Giunipero, Ph.D. copyright 2004 Services for Reverse Auctions ► Janitorial ► Temporary Clerical ► Temporary Professional ► Security ► Cafeteria ► Information Tech ► Travel Services ► Transportation ► Logistics Services ► Express Mail ► Printing Services ► Consultants ► Disposal Scrap & Equip ► Insurance ► Medical

21 L. Giunipero, Ph.D. copyright 2004 Questions to Ponder ► What is your Reverse Auction selection criteria? ► How good is your statement of work? ► How standard is the sourcing process? ► How competitive are the suppliers? ► What is the variation in your key selection criteria across the supply base? ► How important is the current relationship?

22 L. Giunipero, Ph.D. copyright 2004 Provider Support ► Total Solution - consulting, software, training suppliers, conducting the auction ► Partial Solution - selected consulting, and software ► Stand alone - Lease or rent the software and conduct the auction

23 L. Giunipero, Ph.D. copyright 2004 Payment for Provider Services ► Buyer ► Seller ► Both ► Percentage ► Flat fee

24 L. Giunipero, Ph.D. copyright 2004 Rules of the Road ► Bidder selection ► Type of Auction reverse or rank ► Internet Explorer version ► Time Duration for the auction ► Handling price changes or mistakes ► Telephone contact during auction ► Freight

25 L. Giunipero, Ph.D. copyright 2004 Rules of the Road ► Insurance, Liability, Certifications etc. ► Varying rules by different lots in the bid ► Right to split award to more than one supplier ► Costs and expense borne by supplier

26 L. Giunipero, Ph.D. copyright 2004 Case Study 2: During the printing bidding event, the client achieved double the savings target – 25% or over $3 million. 6 suppliers invited to bid on various direct mail pieces Over 75 bids were placed during the online auction The lowest bidders provided 25% savings to the client

27 L. Giunipero, Ph.D. copyright 2004. 1. Conduct Supply Market Analysis 2. Develop eRFP 3. Evaluate Suppliers 4. Conduct Online Negotiation 5. Conduct Total Cost of Ownership Analysis Conduct Automated Spend/ Opportunity Analysis eSourcing Tools Develop detailed RFP with specs and functional requirements Develop supplier evaluation criteria Provide Q&A support to suppliers Identify current and past suppliers Identify additional suppliers from databases and market research Review and analyze RFP based on evaluation criteria Rank various suppliers based on qualitative (non- price) criteria Train suppliers on web based tool and conduct practice sessions Provide operational support to conduct bidding events including surrogate bidding if necessary Rank Suppliers based on Price and non-price criteria Analyze total costs including service costs, supplier qualification costs etc Assist in final supplier selection and develop performance metrics and saving and performance tracking mechanism Spend Analysis Tools Identify operating and sourceable expenses Identify suitable candidates for eSourcing Estimate savings Develop implementation plan – program timeline, project team, cash flows from savings Source: Global eProcure

28 L. Giunipero, Ph.D. copyright 2004 Sourcing Evolution Traditional Bids Reverse Auctions Sourcing Optimization Simple Type Complex Parameters Simple

29 L. Giunipero, Ph.D. copyright 2004 Sourcing Optimization ► Sourcing team can evaluate an unlimited number of alternatives ► Move to a more optimal solution ► Suppliers like the process better than R.A. ► Implementable allocations ► Permits negotiations ► Fast analysis, decision making and implementation

30 L. Giunipero, Ph.D. copyright 2004 Optimization defined…  Item level bidding ► Suppliers can bid individually on items in a lot and see a real-time ranking at item, lot and overall event level  Bundling ► Suppliers can group together items as a ‘package’ price and give a % or $ discount  Business volume discounts ► Suppliers can give a % or $ rebate for volume (units/$) in a given category or categories  Supplier count ► Evaluate single, dual, triple sourcing strategies  Supplier volume ► Guarantee suppliers (e.g., minority) a certain % of business  Supplier performance ► Incorporate performance costs into decisions  Split allocations ► Can be done at item level to ensure supply Supplier biddingBuyer analysis Source: Emptoris

31 L. Giunipero, Ph.D. copyright 2004 Flexible Alternative ► Item-level volume discounts ► Total volume discounts and rebates ► Conditional discounts ► Price plus terms bidding ► Bundled bidding ► Capacity limitations

32 L. Giunipero, Ph.D. copyright 2004 Outcome Constraints ► Supplier preferences  National/International  Local  Regional ► Cost & Unit constraints  Distribution of business  Volume requirements ► Item Conformity

33 L. Giunipero, Ph.D. copyright 2004 Supplier Bids Purchasing PoliciesSupplier Ratings Flexible Requirements The Awarding Process- Role of Optimization Minimize total cost of ownership (TCO) Bundling Multiple price breaks Rebates Substitutions Quality and quantity ranges Multiple delivery locations and times Supplier, category and item level Qualification Quality On-time delivery Item attributes (e.g., tolerance) Item Spec Quantity Due date Proprietary attributes (bid fields) Total cost formula Budget limits Award splits Switching costs Contractual obligation Preferred suppliers Source: Emptoris

34 L. Giunipero, Ph.D. copyright 2004 Evaluating Optimization Software ► Modeling capability to support numerous alternatives ► Ability to capture creative supplier ideas such as volume rebates ► Well developed user friendly analysis tools with reports and outcomes ► Performance and scalability that allows evaluation by the sourcing team in house

35 L. Giunipero, Ph.D. copyright 2004 Key Benefits Source: CombineNet

36 L. Giunipero, Ph.D. copyright 2004 plus ► Skills will need to change ► Strategy needs developed which focuses on external and internal processes ► Some ePurchasing doesn’t need a strategy

37 L. Giunipero, Ph.D. copyright 2004 The Ideal Integration SRMERPCRM

38 L. Giunipero, Ph.D. copyright 2004 Drivers of Transformation Knowledge Strategy Organization Process

39 L. Giunipero, Ph.D. copyright 2004 Thank You! Questions and or Comments


Download ppt "L. Giunipero, Ph.D. copyright 2004 E-Procurement Tools and Reverse Auctions for Sourcing Services By Larry C. Giunipero, Ph.D., C.P.M. Florida State University."

Similar presentations


Ads by Google