Elektroniska Inkp eSourcing och eAuktioner

1
Elektroniska InköpeSourcing och eAuktioner

• Jenny Nilsson
• 2007-08-13

2
Agenda

• Introduktion till IBX
• Varför eSourcing?
• Vad är eSourcing?
• Demo av IBX eSourcing
• Att lyckas med eAuktioner
• Ur Leverantörens perspektiv
• eAuktions Case - Laptops till BigTime Inc.
• Att lyckas med eAuktioner
• Ur Inköparens perspektiv
• Genomgång av uppgift till onsdag

3
Europes leading provider of services and
solutions for efficient purchasing
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IBX is a trusted partner and supports leading
organizations in transforming and operating their
purchasing processes
5
Where is the cost of purchasing in the corporate
structure?
COST OF PURCHASING
1
The actual price the corporation is paying for
the products and services bought
2
The cost of operations associated with sourcing,
procurement and payment
6
System support can help reduce both the actual
price and the cost of operations
Focus
System support
Compliance

• Increased contract coverage

eProcurement

• Reduce the actual price the corporation is
  paying for the procured products and services

Price
eSourcing

• Reduce the cost of operations associated with
  sourcing, procurement and payment for the
  procured products and services

Process
eSourcing/ eProcurement
7
IBX supports companies in transforming their
current purchasing functions into highly
efficient processes
IBX Professional Services From strategy, program
management, implementation, training and supplier
activation
IBX Solutions On-demand system solutions for the
entire purchasing process from source, procure
and pay

• IBX Supplier Network
• One of the largest supplier networks.
• Over 80 buyers
• 10 000 global suppliers
• Global solution used in over 40 countries
• Procurement volume (2005) 1,2 million POs and
  4,4 BEuro
• Sourcing volume (2005) 12 000 events and 6,0
  BEuro

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There are two possible strategies for deploying
eSourcing and eProcurement systems
On-demand solution Hosting by 3rd party
(Application Service Provider)
Behind-the-firewall installation
An application service provider (ASP) is a
business that provides computer-based services to
customers over a network. Software offered using
an ASP model is also sometimes called on-demand
software. The software is owned by the ASP.
A firewalls basic task is to control the
information flow between computer networks with
different zones of trust. The system software is
in this case bought and installed on the
companys servers and systems, behind the
companys firewall.
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Examples of suppliers for eSourcing and
eProcurement

• Module in ERP system
• Example of suppliers
• SAP
• Oracle
• Movex
• Agresso
• and more

• Front Office Application
• Example of suppliers
• Ariba
• Emptoris
• Procuri
• and more

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Agenda

• Introduktion till IBX
• Varför eSourcing?
• Vad är eSourcing?
• Demo av IBX eSourcing
• Att lyckas med eAuktioner
• Ur Leverantörens perspektiv
• eAuktions Case - Laptops till BigTime Inc.
• Att lyckas med eAuktioner
• Ur Inköparens perspektiv
• Genomgång av uppgift till onsdag

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Purchasing influence on bottom line results
Case study SAAB Automobile


SAAB Automobile AB in 1990 - Turn over 17
BSEK, - External spend 10.000 BSEK (58) -
Sales 87.000 cars - No. of employees 17.000
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The Purchasing environment today is often
complex, containing numerous stakeholders and
requires new skills and mindset
Traditional focus
Todays focus

• Operational, administrative tasks, e.g. call-off
• Negotiate agreement, no follow-up
• Limited strategic work

• Less transactional work
• Strategic focus
• Using modern tools
• Internal leadership and networking
• Reversed marketing
• Higher status more attractive
• workplace

13
The buyers challenge - Numerous stakeholders and
no supporting tools

• Limited tool box MS Word, MS Excel, Outlook
• No or limited re-use of category specific RFx
  templates
• No central repository for supplier data
• Long lead time during RFx cycles. Suppliers send
  in their responses in the last minute and
  evaluation is often cumbersome.
• Even repeatable sourcing events (renewal of
  contracts) takes a lot of time
• Distributed sourcing process, no enterprise wide
  best-practice sourcing process

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Our experience is that eSourcing delivers both
tangible savings and process efficiency
eSourcing benefits
Savings
Process Efficiency
Value of purchase portfolio
Time
Time
Reduced purchasing prices
Shortened sourcing cycles
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Ett svarsformat och återanvändning genererar
tidsbesparingar i inköpsprocessen
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Fler leverantörer ger ökad konkurrens
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Agenda

• Introduktion till IBX
• Varför eSourcing?
• Vad är eSourcing?
• Demo av IBX eSourcing
• Att lyckas med eAuktioner
• Ur Leverantörens perspektiv
• eAuktions Case - Laptops till BigTime Inc.
• Att lyckas med eAuktioner
• Ur Inköparens perspektiv
• Genomgång av uppgift till onsdag

18
eSourcing provides support to the first part of
the Purchasing Process
eSourcing
Determining specification
Selecting supplier
Contracting
Internal customer
Ordering
Expediting and evaluation
Follow-up and evaluation
Supplier
Purchasing process by van Weele, Purchasing and
Supply Chain Management, 2002, p 15
19
eSourcing supports and enhances the sourcing
process
Supplier Qualification (RFI)
ProjectManagement
Reverse Auction
RFP/Q
AwardAnalysis
Contract Management
Executive Dashboard
Central DataRepository
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An RFP consists of questions to assure right
quality (RFI) and items for pricing (RFQ)
Non-Price Criteria

• RFI
• Questionnaires
• Questions

• Weight 0-10
• Weight 0-10

• Scoring 0-100 p.

? Total Scoring0-100 p.
RFP
Price

• RFQ
• Lots
• Items

• Price

• Quantity
• Historical Cost
• ? Baseline

• Total Purchase Cost

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Agenda

• Introduktion till IBX
• Varför eSourcing?
• Vad är eSourcing?
• Demo av IBX eSourcing
• Att lyckas med eAuktioner
• Ur Leverantörens perspektiv
• eAuktions Case - Laptops till BigTime Inc.
• Att lyckas med eAuktioner
• Ur Inköparens perspektiv
• Genomgång av uppgift till onsdag

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eAuction High Level Process and Key Activities
Receive and Answer RFQ
Make Clarifications
Review eAuction
eAuction Execution
Prepare eAuction
Process

• Finalise TsCs and SLA
• Translate buyer objectives, competitor
  intelligence and market dynamics into eAuction
  tactics strategy
• Scenario planning target / BATNA/ fall-back
• Understand cost structure real costs

• Agree bid strategy tactics
• Agree rock-bottom
• War room set-up roles responsibilities,
  logistics
• Run dry-run all scenarios
• Assign right people to right roles

• Execute eAuction strategy and tactics
• React to changing environment unforeseen events
• BE PREPARED TO ADJUST TACTICS BUT DONT GET
  CARRIED AWAY!

• Debrief immediately with all key stakeholders
• Document learnings
• Implement next steps

• Identify Key stakeholders
• Understand and react to generic TsCs
• Understand buyer objectives
• Understand Competitor intelligence and Market
  dynamics

Activites
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Some advice DO

• Prepare, prepare, prepare
• Start as early as possible when RFQ is received
• Make all decisions before eAuction
• Understand real costs and prepare absolute
  rock-bottom price before eAuction
• Understand buyers objectives and your
  competitors likely motivations
• Decide target position, BATNA (Best Alternative
  To No Agreement) and fall back positions before
  going into eAuction
• Set up war-room, determine roles and
  responsibilities and do an extensive dry run
  prior to eAuction
• Have the right people for the right roles in war
  room
• Make sure you understand how the eAuction will be
  run timings of each lot, eAuction type, bid
  fields etc
• Have ultimate decision maker close by throughout
  eAuction - in case of emergency
• Have contact numbers fall-back procedures ready
  during eAuction in case of problems
• Use bid tactics to understand competitors
  positions and intent

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Some advice DONT

• Start preparations a few days before the eAuction
  is due to run
• Go into eAuction without understanding all parts
  of the eAuction
• TsCs, SLA, eAuction set-up, eAuction
  calculations, impact of bids to your margins etc
• Calculate new bottom prices during eAuction
• Get carried away
• Leave bid to the very, very end it can take
  minutes to go through (test system)

25
Agenda

• Introduktion till IBX
• Varför eSourcing?
• Vad är eSourcing?
• Demo av IBX eSourcing
• Att lyckas med eAuktioner
• Ur Leverantörens perspektiv
• eAuktions Case - Laptops till BigTime Inc.
• Att lyckas med eAuktioner
• Ur Inköparens perspektiv
• Genomgång av uppgift till onsdag

26
Background

• You are Sales Manager of a medium sized company
  producing laptops in Europe. Your company is well
  known for the outstanding quality of its products
  and has had a steady growth the last 10 years.
  However, the latest year the profit of the
  company has decreased, both due to increasing
  production costs and decreasing sales volumes.
  Your company is therefore in desperate need of a
  major customer order to be able to keep all
  employees and avoid going bankrupt.
• You have now encountered a business opportunity
  which is exactly what your company needs

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eAuction Scenario 1
BigTime Inc. Europe

• BigTime Inc. is looking for a new supplier for
  laptops, and they want to settle a contract for
  their global demand for the next coming year.
• After answering a RFI and RFP from BigTime Inc.
  your company has qualified to participate in an
  eAuction regarding this major order of laptops.
• Get detailed information from your eAuction
  briefing!

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eAuction Scenario 2
BigTime Inc. Europe

• Another year has passed by and BigTime Inc. is
  calling the best 4 bidders from the last eAuction
  for another negotiation on the same conditions.
• Your prices and objectives have not changed from
  last year but this year you managed to secretly
  get in touch with your competitors prior to the
  eAuction to discuss the whole situation.
• Take a 5 minutes coffee break to freely discuss
  your bidding strategy with the competing bidders.
• Get detailed information from your eAuction
  briefing!

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Agenda

• Introduktion till IBX
• Varför eSourcing?
• Vad är eSourcing?
• Demo av IBX eSourcing
• Att lyckas med eAuktioner
• Ur Leverantörens perspektiv
• eAuktions Case - Laptops till BigTime Inc.
• Att lyckas med eAuktioner
• Ur Inköparens perspektiv
• Genomgång av uppgift till onsdag

30
Att lyckas med eAuktioner Från Inköparens
perspektiv

• Introduction to eAuctions
• Review eAuction Functionalities
• Understanding Bidding Dynamics
• eAuction Decision Process
• Summary and Conclusions

31
What is an eAuction?

• Multi-round RFP/RFQ where feedback to suppliers
  happens live
• Mechanism to discover market prices
• Shift of competition from Client-Supplier to
  Supplier-Supplier
• A negotiation methodology adopted since 1999
• It is not an automatic Winner gets Award step
  of the sourcing process

32
Either a buying or selling perspective determines
the main auction typology
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Traditional Sourcing Portfolio analysis suggests
that Strategic Items are not suitable for
eAuctions
However, empirical experience and client
testimonials suggest that this is not always
correct!!
Adapted from Peter Kraljic Purchasing Must
Become Supply Management, HBR Sep/Oct 1983
p.111-112
34
Literally any category is suitable for an eAuction
Examples of eAuction Events
Over 100 Million Euros
Network turn Key
Site material
Capital Expenditures (drill rigs)
Mechanics
Professional Services (IS/IT Consultancy )
Mobile Operators
Electro mechanical components
Transportation (Air, Road, Sea)
Network Services
Facilities Management Outsourcing
Standard electronic components
Mechanical Valves
Elevators Escalators
Optical cable assembly
Travel Agencies
Maintenance
Commercial Print
Consumption goods
Utility
Antennas
Hotels
Courier
Spot buying (services and products)
Water Supply
Field Maintenance
Less than 1 Million Euros
Complex Specifications, Undefined Volumes, multi
Location
Well defined Specifications and Volumes, single
Location
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Att lyckas med eAuktioner Från Inköparens
perspektiv

• Introduction to eAuctions
• Review eAuction Functionalities
• Understanding Bidding Dynamics
• eAuction Decision Process
• Summary and Conclusions

36
Type of eAuctions 1. Standard Auction -
Supplier View

• Bidding
• Bids are placed on individual Items
• Open/Close time sequential by Item
• No aggregation at the Lot or Event level

• Live Feedback
• Price only
• Rank only
• Best/Not Best only
• Price and Rank
• Price and Best/Not Best

Price can be either Leading Bid, Next Lowest
Bid or both. eAuction can also be configured to
show all bids.
37
Type of eAuctions 2. Advanced Auction -
Supplier View

• Bidding
• Bids are placed on all Items
• Open/Close time for entire event
• Aggregation at the Lot and Event level

• Live Feedback
• Price only
• Rank only
• Best/Not Best only
• Price and Rank
• Price and Best/Not Best

Price can be either Leading Bid, Next Lowest Bid
or both. eAuction can also be configured to show
all bids. Price not shown at Lot/Event level.
38
Buyer Configurable Parameters
1
2
3
4
5
6
7
8
9
10
11
12
Details and considerations on next slide
39
eAuction Parameters
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Illustration of Extension Parameters
Parameter settings eAuction opens 1200 and
closes 1300 if no extension will be triggered 7.
Grace period 8min 8. Extension time 12min
(eAuction extends unlimited times until no
further bids will be placed during Grace period)
Real Closing time
Start time
Closing time
1200
1300
1318
Bid
Bid
Bid
Bid
Bid
Bid
Bid
Bid
Bid
Bid
Bid
Bid
Bid1
Bid2
Grace Period
Extension Time
Bid1 at 1257(inside Grace period) trigger
extension with 12min (to 1309) Bid2 at
1306(inside Grace period) trigger extension with
12min (to 1318)eAuction closes at 1318
because of no more bids within the Grace period
New Grace Period
To be considered Extension time should always be
longer then Grace period. The tool may have some
internet delays and will not update supplier
screens immediate with the new bids.
Extension Time
New Grace Period
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Att lyckas med eAuktioner Från Inköparens
perspektiv

• Introduction to eAuctions
• Review eAuction Functionalities
• Understanding Bidding Dynamics
• eAuction Decision Process
• Summary and Conclusions

42
Shift of competition from Buyer-Supplier to
Supplier-Supplier captures market prices
Power game shift
Traditional Negotiation
Online negotiation eAuction
43
Bidding Dynamics reduce price variability whereby
focus is redirected from Price to Quality
Price
Time
Price focus
Quality focus
44
Competition yields either Price Compression or
Price Reduction
Type
Description
When does it happen?
Prices tend towards the RFQ Lowest price
Price Compression Traditional

• Multi supplier award
• Price not the main award criteria
• Supplier see Lowest Price

Prices beat the RFQ Lowest Price ? Incremental
savings

• Single supplier award, i.e., Winner takes All
• Price the main selection criteria
• Supplier see Rank Only

45
Level of bidding dynamics is determined by the
selected communication strategy
46
When soft award criteria is communicated, Price
Compression will be achieved
Case 2 Facilities Management
Case 1 Services
Main characteristics - Several suppliers will be
awarded - Lowest price and rank showed
Main characteristics - Final negotiations will
start with top 1 and 2 ranked suppliers - Lowest
price and rank showed
47
When firm award criteria is communicated, Price
Reduction is achieved
48
Conclusions

• Understanding bidding dynamics provides
  opportunity to control potential savings
• Reducing price variability allows supplier
  selection to shift from price-focused to
  quality-focused
• Price competition occurs because of the Live
  Feedback (Rank/Lowest Price) at the
  Event-Lot-Item level
• Competition yields either Price Compression or
  Price Reduction
• Controlling the level of price-competition among
  suppliers is achieved through communication
• Rank is important will yield Price Compression
• Rank is the decision factor will yield Price
  Reduction

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Att lyckas med eAuktioner Från Inköparens
perspektiv

• Introduction to eAuctions
• Review eAuction Functionalities
• Understanding Bidding Dynamics
• eAuction Decision Process
• Summary and Conclusions

50
eAuction Decision Process
Supplier Award Strategy
eAuction Experience
Suitability Criteria
Event Pre-conditions
4
1
3
2
At what stage of the sourcing process should it
be run?
What should be the eAuction Structure ?
Is the objective further price reduction or
compression?
Is the category suitable for eAuction?
Consider eAuction
eAuction Communication
eAuction Process
eAuction Structure
51
eAuction Decision Process- Suitability Criteria
Supplier Award Strategy
eAuction Experience
Suitability Criteria
Event Pre-conditions
1
2
3
4
At what stage of the sourcing process should it
be run?
What should be the eAuction Structure ?
Is the objective further price reduction or
compression?
Is the category suitable for eAuction?
Consider eAuction
eAuction Communication
eAuction Process
eAuction Structure
52
1. Is the category suited for eAuction?
Category Suitability Criteria
?
1a. Competitive Market?

Yes
eAuctions require a market with at least some
degree of competition
No
If Yes to all, the category is suitable and
eAuction should be an option. Which categories
(or conditions) are not suited for eAuction?
?

1b. Precise Specifications?
Yes
eAuctions require that the buyer is able to
clearly define in advance the product/service in
scope
No
?

1c. Supply Comparability?
Yes
eAuctions require relative indifference, and thus
ease of substitution, on the supply side
No
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1a. Competitive Market Conditions

• Conclusions
• eAuctions requires a market with at least some
  degree of competition.
• In case of supplier driven markets where the
  supplier can select customer and dictate prices
  and conditions or market price level is
  increasing, eAuctions are not suitable.

54
1b. Precise Specifications

• eAuctions requires that the buyer is able to
  state in advance what to buy.
• In fast changing markets or complex commodity
  areas, a RFI round or supplier meetings may be
  required before establishing specifications.
• An RFI/RFP round or supplier meetings may be
  required before establishing specifications
• Supplier neutral product/service specifications
  is important

55
1c. Low Supplier Differentiation

• The buyer must be relatively indifferent to the
  products or services provided by participating
  suppliers, i.e., there are no factors which make
  the product or service of one supplier superior
  to those of others.
• If possible, try to define clear award criteria.
  To define this, a clear view on what the quality
  level, value and cost-driving factors are is
  essential. If not, there is a risk of too high
  focus on price, which may result in weak
  attention from the suppliers.
• All suppliers in an eAuction should be potential
  suppliers
• All adjustments, e.g. switching cost should be
  identified in advance

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eAuction Decision Process- eAuction Experience
Supplier Award Strategy
eAuction Experience
Suitability Criteria
Event Pre-conditions
1
2
3
4
At what stage of the sourcing process should it
be run?
What should be the eAuction Structure ?
Is the objective further price reduction or
compression?
Is the category suitable for eAuction?
Consider eAuction
eAuction Communication
eAuction Process
eAuction Structure
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2. At what step should an eAuction be run?





Preparation
Strategic Sourcing Process
Follow Up
Implem.
Negotiations
RFx
Mapping
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eAuction Process
PreeAuctionReview
FinaleAuctionReview

• eAuction review checklist
• eAuction team table
• Supplier invitation letter

• eAuction created
• Supplier invited and trained
• eAuction event management prepared (checklist and
  contingency plan in place)

2. Create eAuction
3. Invite Train suppliers
4. EventManagement
5. Post Event Process
1. eAuction Preparation

• Pre qualify suppliers
• Prepare spend data
• Auction baseline
• Define eAuction team
• Outline event strategy
• Outline bidding rules

• Using quick guide and step by step guide

• Create training event
• Send invitation letters
• Conduct supplier training using WebEx and
  conference call
• Send out supplier logins

• Assess high level results
• Run scenarios
• Decide on award
• Notify participating suppliers
• Update the event list
• Create event summary

• Contingency Plan
• eAuction Checklist
• eAuction Policies

Process step
Review point
59
eAuction Decision Process- Supplier Award
Strategy
Supplier Award Strategy
eAuction Experience
Suitability Criteria
Event Pre-conditions
1
2
3
4
At what stage of the sourcing process should it
be run?
What should be the eAuction Structure ?
Is the objective further price reduction or
compression?
Is the category suitable for eAuction?
Consider eAuction
eAuction Communication
eAuction Process
eAuction Structure
60
3. What should be the eAuction Lot-Item Structure?
Align Lot-Item structure with the supplier
selection criteria
Use projected volumes to ensure meaningful
feedback at the Lot-Event Level
Prepare the RFQ/RFP thinking of the possible
eAuction structure
61
eAuction Decision Process- Event Pre-conditions
Supplier Award Strategy
eAuction Experience
Suitability Criteria
Event Pre-conditions
1
2
3
4
At what stage of the sourcing process should it
be run?
Is the objective further price reduction or
compression?
What should be the eAuction Structure ?
Is the category suitable for eAuction?
Consider eAuction
eAuction Communication
eAuction Process
eAuction Structure
62
4. What is the desired level of competition?
Event Pre-Conditions
High
Low
RFQ savings result
Set at the Transaction Level
Set at the Contract Level
Quality of Fulfillment
Primarily Variable
Primarily Fixed
Industry Cost Structure
Price Reduction
Price Compression
eAuction Communication
63
Att lyckas med eAuktioner Från Inköparens
perspektiv

• Introduction to eAuctions
• Review eAuction Functionalities
• Understanding Bidding Dynamics
• eAuction Decision Process
• Summary and Conclusions

64
Risks and Mitigation factors in an eAuction
Risks
Mitigation Factors

• Set the right level of competition through the
  eAuction communication
• Set savings target and close eAuction when
  reached
• Do not disclose participants
• Keep broad supplier pool
• Create realistic base case in eAuction
• Manage discounts in negotiations
• Winners can be more than 1
• Winners do not need to be identified after
  eAuction
• Ensure participants are truly pre-qualified
• Same approach as multi-round RFQ

• Price competition may compromise quality
• Supplier collusion
• Inability to incorporate discounts
• Managing multi-supplier award
• Incorporating non-price criteria in supplier
  selection

65
Conclusions of eAuctions

• Price variability minimized through either price
  compression or price reduction, thus simplify
  the supplier selection process.
• Most commodities are suitable
• Can be used either as an alternative to
  multi-round RFQ/P (Option 1) or as the final
  award decision step (Option 2)
• The RFQ/P structure should be defined in thought
  of the desired eAuction feedback at the Lot-Event
  level
• Communication will greatly influence the level of
  competition. Buyers should set the stage based on
  the Event pre-conditions, i.e.
• RFQ savings results
• Quality of fulfillment
• Industry cost structure

66
Some final piece of advice

• As any negotiation, proper preparation is key
• Impeccable business Ethics
• Quantities, quantities, quantities
• Keep simple
• Clear supplier communication prior, during and
  after event
• Walk the Talk Act accordingly
• And remember
• Sourcing is an art, not a science
• Anonymous

67
Agenda

• Introduktion till IBX
• Varför eSourcing?
• Vad är eSourcing?
• Demo av IBX eSourcing
• Att lyckas med eAuktioner
• Ur Leverantörens perspektiv
• eAuktions Case - Laptops till BigTime Inc.
• Att lyckas med eAuktioner
• Ur Inköparens perspektiv
• Genomgång av uppgift till onsdag

68
Hur skulle en eAuktion se ut om ni var inköpare?

• Skapa ett upphandlingscase på max en A4
• Tänk ut eAuktionsstruktur
• Max 10 items (prisobjekt)
• Bid Fields / Budfält, t ex produktionskostnad,
  transportkostnad osv.
• Skapa Baseline volymer och historiska kostnader