Archive for June, 2008
Auction confusion
Here are some items that popped into my google alerts recently for reverse auction:
- A lowest unique bid wins gambling site. Their press release appears to be deliberately confusing given that talks about reverse auctions, procurement auctions and e-sourcing before diving into their gambling piece. They even go so far as to claim that “The legality of low unique auctions has been proven by the American, British and the Danish governments who are all using the low unique auction concept [for awarding procurement contracts].” (No they’re not, they’re using reverse auctions – they aren’t using gambling sites)
- Forwards Dutch Auctions for mobile gear
I know some of you will consider this is just me quibbling over semantics but this is pretty important. Surely buyers need to know their auction types to be able to run effective sourcing projects. Just like they need to know their DDP from their FOB. I get really riled when people use the same term to mean completely different auction types. How many buyers would know that this auction here is not a reverse auction at all but is a forwards dutch auction?
Add comment June 24, 2008
Spreadsheet Worst Practices
I’ve long contended that, behind all the hype about Source To Pay systems and SRM packages and Flex interfaces and eAuction software, Excel remains one of the top 3 software tools for buyers. (The other 2 being Outlook and Google).
So I enjoyed reading this article on CFO.com all about spreadsheet worst practices and how to avoid them. Here’s how the article starts:
There’s little doubt that electronic spreadsheets are the most widely-used financial software application. But they are also the most-abused.
The article clearly struck a chord with CFO’s readership, as they published a follow up with readers’ views.
The CFO article is directed mainly at those who use Excel for number crunching, analysis and what-if planning. So the practices in the article will be of most interest to buyers who use Excel for analysis. But there are also some nuggets that you can pull out of the articles, even if you only ever use Excel for issuing RFQ templates.
The practices CFO highlights:
1. Poor segregation of data. Some people use Excel just as a super calculator. So if you look into a cell you might find the formula “=300000*1.50+158000*1.46+250000*1.20*0.95”. While it might make sense to the person doing the calculation at the time that we are looking at the total forecast spend for three different parts (300000 units at $1.50, 158000 at $1.46 and 250000 at $1.20 less a 5% discount), a formula as bare as this is not going to help explain the data 3 months down the line
2. Poor documentation of assumptions. The last part in my example formula is 250000*1.20*0.95. You could read this as 250000 parts at $1.20 with a discount of 5%. But why the discount? Does the discount always apply? Or is it some volume discount based on ordering over 200000 items?
3. Poor documentation of constraints. Don’t put one complex formula in a cell. Remember in your maths exams when you were always told to show your workings? Same applies in Excel. Better to use multiple, intermediate calculations to show how you are getting to the final result.
4. Difficulties in making changes. If we decided that we wanted to change the forecast volume for part B to 180000 then it’s not immediately straightforward to know where to update the spreadsheet
5. Now it’s here, Now it’s not. The ability to change one value in a spreadsheet and have all the relevant values re-calculated is very powerful. But it’s also easy to lose track of where you were before you started your what-if scenarios. CFO.com’s recommendation is to use different worksheets for different scenarios, with one master worksheet to summarise and compare the results of your different scenarios.
6. Presentation Ready. It’s not hard to set your spreadsheets up for printing – with headers, footers, page sizing, repeating columns and rows. But it’s often overlooked, to the annoyance of the people you are emailing your spreadsheet to.
Add comment June 20, 2008
Greener sourcing – a personal tale
Last year I moved out of London and bought an electric scooter from these guys for driving the 3.5 miles between my new house and the train station.
The story so far:
1. When it first arrived it didn’t work: the batteries weren’t functional. It took a good two weeks to get it workable.
2. Finding an insurer was a mission. There’s apparently only one in the UK. They aren’t cheap.
3. Stuff just fell off the scooter. Nothing major (yet). But still I haven’t got working replacements.
4. One of the options I bought they never even delivered. Kept fobbing me off for best part of 9 months (and I didn’t have time to chase every day).
5. It was vandalised once (someone yanked an important cable out) – and the supplier expected me to be able to fix it. Heck, I don’t even own a soldering iron, let alone feel confident digging around in the bowels of the scooter.
6. Kids have sniggered at the man on the scooter … Until they realise it’s electric whereupon their sniggers are replaced by wows.
7. Fellow commuters are impressed by the electric scooter. Then they overtake me on the way home.
8. It is fun to drive a nearly silent machine. But it would be nice if it would go faster.
9. It’s nice not to need to stop and fill up with petrol (though I have no idea whether the electricity I use to charge it is cleaner, greener and/or cheaper than petrol would be).
It’s clear that this bike is still bleeding edge. It’s still the domain of enthusiast hackers. Definitely not ready for consumer prime time.
Parallels for professional buyers:
Beware of getting too far ahead of yourselves on green initiatives. Unless you have the time, inclination and executive support get too far ahead of the pack and you could struggle (1,2,3,4,5).
There is a good marketing angle (6,7).
And, heck, it might even make you feel better (8,9).
To be honest: When I look at my buying decisions at work I haven’t gone out of my way to buy greener at work. The only thing I can recall doing recently is ticking the box marked “plant a tree for every server” on a hosting deal.
2 comments June 19, 2008
How many suppliers should I have in a reverse auction?
A few years back we did some work with Oxford University. They were interested in how procurement auctions fitted into the bigger auction picture. We were interested in finding out how in line with auction theory we were. I was looking through my old material from that study and I want to share a neat graph from that work that models how expected savings rise the more suppliers you include in an auction.
If you assume that all suppliers in a marketplace have a price evenly distributed between a low price and a high price then, on average, the savings you would get increase as shown in the graphic above. This helps emphasise that 4 bidders is a good number for a reverse English auction, as I have often said. But one thing to clarify: this is a model – you can do better than the model by ensuring that when you select potential suppliers that you are selecting suppliers who have a lower price rather than selecting suppliers at random from the marketplace.
1 comment June 17, 2008
IT and Procurement. Can we ditch the stereotypes?
Two things caught my eye this week on the ongoing love/hate relationship between IT and Procurement.
IT doesn’t like Procurement
An article in Computer Weekly, 10 June 2008 print edition under the title: Procurement teams fail to serve IT. It reports on a talk given by Andy Kyte from Gartner. Some quotes from the piece:
Andy Kyte said that some businesses spend as much as 90% of their IT budgets on third-party suppliers but fail to get good value for money. Kyte said that IT procurement teams often act as if the only stakeholder they work for is the finance departments, and this is the reason why many deals do not add value and even lead to projects failing.
And, directly quoting Andy: “There is an obsession with cutting costs in IT procurement, but IT is about ensuring a better quality service to users.”
You’d expect Andy Kyte to know his stuff when it comes to procurement. After all, he’s featured here at AribaLive 2005.
Procurement doesn’t like IT
Which brings me to the this posting on the Ariba blog about Software As A Service vs IT. Here’s one quote: “it seems clear that IT’s tight grip on all things digital is gone and end users are winning the war.”
Which war? Justin goes on to explain:
What business user can survive without access to SaaS applications like WebEx or Salesforce? After a long battle over letting those and other apps through the network gates, the end users have won. IT simply can’t hold their end users back, strangling their productivity as more and more critical applications move online.
So can we ditch the stereotypes?
The stereotypes are there in full effect: From IT’s perspective, procurement is only about cutting costs. From Procurement’s perspective, IT is a gatekeeper which prevents users from doing business effectively. Sure there is some truth to both of those stereotypes. Yet at the same time there are CIOs who are looking at ways to break down information barriers within and between enterprises just as there are CPOs who are looking to generate value beyond unit price savings. From what I’ve seen in my professional life so far – which has touched both IT and Procurement – the similarities between the functions are greater than the differences.
Add comment June 13, 2008
Auctions: Seeing is Believing
Saw this post on Ariba’s blog about online reverse auctions. Good news that they are shining light back onto reverse auctions. Some comments:
Having budget stakeholders watch their potential suppliers competing for their business in an auction is a very powerful way to help sell the process internally. It’s a much easier concept for people to grasp if they see the results – better terms and/or lower costs – happening right before their eyes, with all the drama of a ticking clock.
Couldn’t agree more. And if you want to see a real auction (as opposed to a canned demo), TradingPartners regularly runs “viewing rooms” at which you are welcome to come and see for yourself a real auction. Clearly it won’t be your budget that’s being auctioned. But nevertheless seeing a reverse auction playing out in front of your eyes – and just imagining that it could be your company’s money you are saving – is the only way to really understand the power of the tool. If you are interested check the news pages on www.tradingpartners.com. And when you are running your own auction program it is very important to get stakeholders in to see the auction on auction day. It’s the best way, certainly that I’ve seen, of encouraging more reverse auction usage.
Disclosure: Yes, I work for TradingPartners (see the About page).
Add comment June 12, 2008
Procurement Solutions Expo
At Procurement Solutions, in between presentations.
Some notes:
1. It’s a bewildering exhibition. From carpet tiles to legal services via tablet PCs. Too broad I think.
2. The TradingPartners blue bouncy balls are a big hit. With everyone picking them up for their kids/grandkids, I am predicting a surge in demand for TradingPartners services in about 30 years.
3. I was reading in Public Sector Procurement magazine about Zanzibar (the UK Public Sector eProcurement system) that Zanzibar has recently added RFQ processes. Before this, everything I have seen from the OGCbs has kept “procurement” separate from “sourcing”. Looks like this move by Zanzibar challenges that distinction. It will be interesting to see if ProcServe (the company behind Zanzibar) make a move on the eSourcing framework when it comes up for renewal.
Add comment June 10, 2008
eAuctions at Procurement Solutions Tomorrow
I’ll be at the Procurement Solutions for the public sector event at Earls Court tomorrow 9th June. Doing a talk on auction types at 10am and then at 2:40pm an auction demo with Chris Chettle from OGCBuying.Solutions.
Hope to see some of you there.
Add comment June 9, 2008
Where next has changed.
Don’t adjust your browser settings. You’re in the right place. This is still Alan Buxton’s blog. But with a new look and focus.
(Note: The old URL and old Feeds, whether from WordPress or Feedburner, will continue to work)
I started this blog with the vague intention of blogging about eAuctions in particular and Business Technology in general. But the more I write the more I want to keep these areas distinct. So much so that I’ve now decided to start another blog, Golden Pebbles to get tech stuff off my chest.
In parallel, over the last two years I’ve realised that the distinction between eAuctions and eSourcing is more arbitrary and more complex than I originally thought. I’ll try to explain:
The vast majority of the questions/issues/challenges I hear about reverse auctions are not about reverse auctions at all. For example:
- Auctions aren’t able to handle quality – they just consider price
- Auctions lead to suppliers selling at unsustainable prices, which is bad for the supply market
- Auctions lead to poor decisions because they try to compare suppliers bidding apples with suppliers bidding pears
- etc
But hang on - auctions are a tool. Used by buyers. Some buyers are keen to hammer suppliers on price. They may or may not use auctions to achieve this. For sure they can use auctions to hammer suppliers. But there are also plenty other ways to hammer suppliers. Check the recent “flaming lamborghini” stories about some of the negotiation tactics used by retailers. So change the word “Auctions” in the bullet points above with “Some buyers” and you have a more accurate picture of the reality.
Additionally, from the reverse auctions I’ve seen, it’s clear that the better ones need a lot of up front work to deliver. What you see on auction day is just the cherry on the cake. Before the auction you need to select suppliers, agree specifications, make sure everyone is clear on what is being contracted etc etc. In other words all the same stuff buyers should be doing anyway when they are sourcing. Whether they do an auction or not.
So my epiphany is that auctions are just sourcing. On one level it’s abitrary where you put the line between them because really an auction is not a different way of sourcing. An auction is just the best way of harnessing competition in your sourcing projects.
But running a good auction is about more than just turning on a piece of software. There is a lot of thought and hard work to do up front to give you the biggest chance of success. Again this should be no surprise. If you send out RFPs then the challenge is more to do with putting together sensible questions in the RFP. The challenge is not really about which piece of software is used to issue the RFP.
So while I remain a staunch advocate of auctions (and use them myself when I can) I find myself taking a broader view of auctions & sourcing than perhaps I did 2 years ago. And I figured it’s time to grow up a bit and get a proper domain name. My trials and tribulations with domain names are a story for another day but I finally settled on www.esourcingplace.com. A place for sourcing. Still focussed on auctions because it’s what I’m closest too. But I’ll also drop in some more general sourcing points now and again.
Add comment June 7, 2008
What I learned from the conference season
An aside: Is conference “season” a North American thing? Or is a global phenomenon. I will readily admit to not being a conference junky. I only tend to go to conferences at which TradingPartners is exhibiting.
I’ve only been to one conference this “season” so far: eWorld Purchasing & Supply in Feb. I will be at Procurement Solutions next week, again speaking about eAuctions.
So what did I learn from eWorld Purchasing & Supply?
Briefly:
1. Hackett’s keynote fascinated me. It made the case that procurement as we know it (strategic sourcing, supply chain management etc) can only add so much value to the organisation. In order to advance beyond this then procurement will need to re-invent itself.
2. There seems to be a renaissance in eSourcing providers out there these days. I think we were in double digit identikit eSourcing software vendors exhibiting - many of whom I had never heard of before. How can vendors stand out in this kind of marketplace? Focus on key competencies.
3. But the real topic of conversation amongst the delegates, and the real reason most went, was to learn something about “green” and “sustainability”. And many felt let down by the advice that “you can be green and save money by using less packaging”. There is obviously a large gap in the market here. This is encouraging. But at the same time it’s worrying because the pent-up demand for green solutions of some shape or form is going to be an irresistible tempation for hucksters. Buyer of green solutions, beware. As ever.
1 comment June 3, 2008
