1 1 513: integrating auction technology into your bidding strategy breakout session #513 whitney...
TRANSCRIPT
22
513: Integrating Auction Technology into Your Bidding Strategy
Breakout Session #513
Whitney Taylor
Advanced Micro Devices, Inc. (AMD)
July 20, 2010
Time: 2:30-3:45PM
3
“Of the best-in class enterprises that source strategically using best practice strategic sourcing techniques, 67% have deployed sourcing automation in either a dedicated
hosting environment or shared, multi-tenant (On Demand) model.“
From: Strategic Sourcing in the Mid-Market Benchmark: The Echo Boom in Supply
Management, Aberdeen Group, December 2005
4
13 Minute Auction Results in 11% Reduction
Source: AMD 2010 Example
5
Agenda
• Interactive Discussion
• Auction Overview & Value
• Auction Types
• RFx & Auction Strategy & Preparation
• Stakeholder Buy-In
• Supplier Participation
• RFx Evaluation
• Summary
3 Steps in Sourcing Process can be influenced by auction
6
•Internal & external analysis •Define business requirements•e-RFx and supplier management •Bid collection and negotiation •Decision optimization •Award and contract •Manage supplier performance
7
Auction Overview
• Considered online negotiation• Creates marketplace pressure• Provides supplier marketplace insight• Provides immediate feedback• RFx (I, Q, P, Auction)• Standard initial savings 10-15% w/ additional
subsequent savings• RFx tools & templates can reduce time to
complete RFx
8
Auction Types
• Forward Auction – Drives price up (Example: Selling on eBay, selling reclaimed materials)
• Reverse Auction – Drives price down– Traditional Bidding – Considers straight price;
other evaluation components are considered outside bidding process
– Transformational Bidding – Considers value in rankings; Ex. Shorter lead time = improved ranking
– Optimized Bidding – Define optimal outcome, rankings encourage this model; Ex. More geographies = improved ranking
Auction Tools
9
Source: Gartner Magic Quadrant for Strategic Sourcing Application Suites Feb 2010
Iasta
SynerTrade
Ariba
AEC Soft USAPool4Tool
Zycus
SAP
Bravo Solution
Emptoris
Fullstep
Ivalua
Curtis Fitch
Global eProcure
Challengers Leaders
Niche Players Visionaries
Abi
lity
to E
xecu
te
10
Auction Strategy• Define scope & requirements
• Global, regional, local needs
• Determine desired award scenario
• Define decision criteria & integrate into technology
• Define pricing scenario (fees, rates, units, items, lots, lump sum)
• Develop bidding timeline
• Determine confidentiality needs
• Determine auction dynamics – timeframe to input bids, overtime extensions, bidding blocks to inhibit marketplace observers, reserve price (must beat)
• Reveal rank only or rank and bids
Stakeholder Buy-In
11
• Identify senior executive champion• Ensure stakeholder buy-in prior to RFx• Agree that this should be competitively bid then
pursue auction as a tool to facilitate bidding• Conduct auction demonstration• Show previous outcomes• Collaboratively develop bidding strategy, timeline,
bidder’s conference
12
Bidder Strategy• RFI enables early input from bidders to determine
bidding strategy• Lowest cost supplier strategy will drive prices down
further• # of suppliers per location• Ensure service coverage• Pricing is only one of the criteria (quality/service, etc.)• Reveal only rank or rank and bids• Determine bidding requirements vs options• 3 or more suppliers per bidding opportunity• Determine Q&A process; use tool to track
13
Preparation is critical to auction success
• Qualify suppliers before auction
• Consider currency exchange rates
• Obtain historical cost prior to auction
• Define evaluation criteria; cost is just one component (service, quality, technology, flexibility)
• Use automated scoring and have sourcing team evaluate within tool
14
Example Law Firm Rate Auction
Source: AMD Example
15
When not to use Auctions
• Highly customized or ill-defined scope• Spend is not significant to suppliers• Effort required to bid exceeds business value• Supply base <3• Over-use may deter participation• Do not plan to auction every RFx, mixing formats
will keep pricing fresh• Do not plan to negotiate after an auction as it
reduces validity of process (bidding pressure) over time
16
Supplier Participation
• Host online bidder’s conference including training on bidding tool
• RFI may help bidder’s understand tool before RFP• Proactive communication still required• If a supplier is not bidding it may mean they don’t
understand technology• Publish Help Desk #
17
Summary
• Increasing market pressure & insight decreases cost
• Technology adoption can be challenging
• Use breeds acceptance
