eSourcing Technology and the Supplier Selection Process. Presented by: Jamie Orzell & Jerry Lighthouse. Agenda. 1. Intro to Advanced Purchasing Technology, LLC 2. Intro to eSourcing Technology 3. Intro to Surveys
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eSourcing Technology and the Supplier Selection Process Presented by: Jamie Orzell & Jerry Lighthouse
Agenda • 1. Intro to Advanced Purchasing Technology, LLC • 2. Intro to eSourcing Technology • 3. Intro to Surveys • a. “Pre-Qualification” – Gate to determine who qualifies for bid • b. “Outsourcing Selection” – Scoring bid participants in bid • c. Scoring Process and Scoring Matrix • d. Examples of Scoring Questions • 4. Online Bid – Final step in Supplier Selection Process. • 5. Supplier award process
Advanced Purchasing Technology, LLC An Upstate NY, LLC We are a technology & consulting company that helps companies reduce costs. • Sell online bidding technology • Utilize this technology to conduct online competitive bids • Teach organizations how to implement this technology • Provide Procurement / spend analysis and consulting
Advanced Purchasing Technology, LLC We are former Kodak WW Purchasing Commodity Managers responsible for implementing the online bidding program for the company. • Knowledgeable on how to use these tools to save companies time and money. Some of our notable clients include Birds Eye Foods, the University of Pennsylvania, Commonwealth of Massachusetts, Foxwoods Casino, and the Rayovac Corporation. • Have been involved in “outsourcing” activities using eSourcing technology. • Facilitated over 500 online bidding events representing over 800M of spend for a wide variety of goods and services. • Implemented global processes for online bidding and have trained over 230 buyers on online bidding and its related processes.
Why is eSourcing technology so popular? • It’s energy efficient for the both buyers and suppliers. Online Surveys and bids requires less effort than other more manual methods • It drives competition and ultimately lowers buyer’s cost on all kinds of goods and services • It reduces costs (bid preparation )for the suppliers
Strategic Sourcing & eSourcing Strategic SourcingOverview HR Develop Skills Understand Spend Sourcing Strategy Supplier Mgt. Enabling Systems Risk Mitigation
Strategic Sourcing & eSourcing Strategic SourcingProcurement facts / information… • Senior Management is now more involved in strategic sourcing • 88% of procurement professionals feel that the supply functions adds significant value.. Yet… • Only 37% of CEOs feel the same way… • What percentage of your external spend is supervised by purchasing and is covered by a written strategic sourcing plan? • What percentage of spend is leveraged through internal spend pools?
Competitive Bidding • Competitive bidding drives savings (both time and dollars) • Organizations must periodically test the market on the goods and services they are purchasing. • Competition improves all markets – suppliers perform better when faced with competition.
How does it work? • A bidding event where the Buyer posts a requirement and suppliers “bid” on the opportunity to sell • Prices decrease • The internet facilitates bidding events allowing geographic separation and some degree of confidentiality • Think of it as industrial , but in reverse and without the chaos and confusion.
What is an online bid / reverse auction ? Bidder View
What is an online bid / reverse auction ? Buyer View
What is an online bid / reverse auction ? • Reserve Prices • Starting Prices • Bid Visibility (best bid, all bids, sealed bid) • “Extensions”
3 Components of Online Auctions Find Suppliers Setup Your Bid Monitor Online Auction
Why implement ? • Online Bidding creates truly competitive • marketplaces. Savings average 18-25 percent. • Streamlines the negotiation process by using • real-time internet-enabled technology. • Online Bidding provides valuable market data. • Drives process discipline into the sourcing selection process. • All Fortune 500 companies and some GPO’s use this technology
Buyer Supplier Software & Hardware • No special software – MS Internet Explorer is the recommended browser • Decent internet connection – telephone dial-up connections can experience problems. • No IT support – ASP hosted solution • No $’s upfront to get started!!
Online Bidding Saves Time ! Traditional Bidding Flow Online Bidding Flow Steps are the same, but you spend more time up front and save much time negotiating and overall.
Is it ethical ?… Is it ethical to show competitors bids and allow multiple opportunities to beat the lowest bid ? • Anonymous bidding (though configurable in most tools) • All bidders have an equal opportunity to see the other bids • All bids must submitted within the same timeframe • No one bidder is given an unfair advantage
Direct Material Savings Fabricated Parts 20% Fabricated Sheet Metal Finished Machine Parts Finished Machine Parts Forged Steel rolls Machining & Fabrication Modular berths Feed Stocks 29% Cast Iron Copper Deox Aluminum Ferrous Compounds Low end Plastic Nickel Plastic/Pellets Rigid Glass Stainless Steel Tin Zinc Electronic/Electrical 30% Cable Assemblies Cables Capacitors Ceramics Circuit Boards Connectors Crystals Digital Media DRAMS Electric Motors Electrodes Electrolytic Caps Fiber Optic Cable Integrated Circuits Magnetic Tape Memory Chips OEM Systems Power Cords Radiology System Resistors Semi-Conductors Silver/Films/Resins Transformers Transmission PWB Tuners USB Cables Wire Harnesses Ingredients 26% Ascorbic Acid Aspartame Biscuits Butter Cheese Chocolate Powder Citrates Citric Acid Cocoa Coffee Coffee Mix Gelatin Milk Nuts Oils & Fats Oleo Mineral Phosphates Powders PSD Snack Soluble Coffee Soup Sugar Tea Vanilla Yogurt Chemicals/Acids 18% Abrasives Amines Biocides Bulk Chemicals Chromium Cleaners Corrosive Inhibitors Defoamers Dust Suppression Ferro Compounds Freeze Conditioning Glycerin Hydraulic Oil Hydrochloric Acid Hydroquinone Lubricants (oils & Greases) Manganese Misc. Mill Chemical Mold Powder Molybdenum Monomers/Polymers Rolling Oils Silicon Sodium Bromide Sodium Nitrite Solvents/Alcohols Sulfuric Acid Surfactants/ Fatty acids Zinc Chloride
Indirect Material Savings Plant Services 24% Cleaning & Maintenance Constr./On-site Repair Electrical Repairs Facility Assessment Hardware Maintenance Janitorial Service Misc. Mill Service Painting Printer Maintenance Safety Supplies Security Service Software Maintenance Waste Management Water Treatment Office Supplies/Equip. 29% Carpet Chairs Conference room furniture Copy Paper Desks Office Supplies Printing Paper Specialty Paper Table Workstations Professional Services 27% Advertising/Media Services Audit/Accounting Service Call Center Service Care Coordination Case Management Services Cognitive Assessment Copiers Credit Service Engineering Service Health Assessment Human Resource Leasing Service Legal Services Limo/Van Services Mail Service Marketing Services Medical Services Outsourcing Service Payroll Service Real Estate Services Support Service Temporary Service Training Travel/Transport/Freight30% Air Travel Hotels Rooms International Air Freight Roadside Assistance MRO 25% Abrasives Ball Valves Bearings Cleaners Filters Frames Hoses & Belts Janitorial Services Light bulbs & ballasts Lubricants Magnets Packing/Gaskets/Seals Printing/Publishing Safety Supplies Tires Tools Uniforms Wood & Lumber IT Equip./Services 24% Accessory Kits Computer Rentals Computers Computing Storage Data Streaming Database Mining / Warehousing Hard Drives IT Consulting Key Boards Laptops, Cell Phones etc. Marketing Software Mice Midrange Computing Modems Monitor Printer Technology Sourcing Video Cards Packaging Materials 25% Bottles & Tooling Containers Labels/Overwraps Molded Plastics Paper Tubes
Determining your Strategy… Medium-term Contract; Consider Bid / Auction Long Term Strategic Contracts High Strategic Importance Create Leverage; Aggregate purchases; set up blanket POs or term agreements Create Market: Reverse Auction Low Low High Market Competitiveness
Strategic Sourcing Process Industry Analysis Negotiation Market Analysis Benchmarking Competition Supplier Analysis Spend Analysis Sourcing Strategy Sourcing Tactics Best Value Cost + Quality + Performance Review Spending Pools
Categorizing your Spend Strategic Suppliers ~ 10 % ~ 20 - 30 % Preferred Suppliers Competitive Based Suppliers ~ 60 - 70 % Start here! * This categorization can vary widely by industry and geography
Price Transparency • Price transparency is what’s different with eSourcing that delivers incremental savings!
“DEMO” “Demo” Online Survey and Online Bid for Qualifying & Selecting Suppliers
Successful Online Bidding do’s… • Invite a reasonable number of bidders to your event (recommended minimum is 3) • Make your business attractive and significant • Publish comprehensive and detailed specs. • Communicate with suppliers before, during & after • Obtain client support (invite to event) • Award business to low bidder • Have ‘faith’ in process
Successful Online Bidding don’ts… • Don’t issue a ‘paper’ quote first • Don’t assume the current arrangement is optimal. Look for simpler/better ways to do business. • Don’t aggregate items based on your portfolio. Look at the way market is organized. • Don’t collect data during events.
Steps to Run Online Bidding Events… • #1 – Define Project • #2 – Develop Strategy & Build Test Event • #3 – Train Suppliers(Test Event) • #4 – Address Supplier Issues and Concerns • #5 – Conduct the LIVE Online Bidding Event • #6 – Rapid Value Assessment (minutes/hours)
Case Study Price Benchmark
Opportunity Assessment Exercise • Use Sourcing Analysis Worksheet (handouts) to create list of opportunities for your commodity / portfolio. • Work as individuals or commodity teams • Select the Top 3 Opportunities in your area. • 10-15 minutes
Sourcing Analysis Worksheet Market Competition Spending Category: Dollar Value: Buyer’s Name: Current Sourcing Method: Timing: Recommended Sourcing Tactic: Weak Strong Evidence Price Transparency Disadvantage Advantage Supplier Relationship Strategic Competitive Rationale Uniqueness Unique Generic Supplier Availability One Supplier Many Suppliers Potential Suppliers
“Facilitated Event” Costs • Most eSourcing companies (who run facilitated bids for others) have the following pricing models: • Shared savings where the current costs are well understood (earns 10% of the savings, you retain 90% - minimum auction value = $50K) • Fee of 1 to 2 % (depending on the event size and complexity) of the auction value. • Fixed fee for a fixed number (6, 12 etc.) of events • Supplier Payfee – typically 1-2% (depending on the event size and complexity). Used often for collaborative bidding events where there are multiple buyers. Only the winning supplier pays the fee.
Jamie Orzell Phone: 585-419-9271 email@example.com Conclusion Thank You ! Jerry Lighthouse Phone: 585-247-0618 firstname.lastname@example.org