E-sourcing is a must for the modern sourcing professional, but sometimes it falls by the wayside due to the press of business. Running an e-sourcing event is a great reminder that the time and money you save with e-sourcing makes it well worth investing in mastering the process.
Such was the case with an e-sourcing event I recently helped run for a large U.S. services company. They needed to replace the copiers in 2,000 locations across the country over the next few years, at a cost of a few million dollars.
The team there had dabbled in e-sourcing in the past with positive results, but still mostly relied on Excel and email for sourcing management. With copiers being one of their largest areas of indirect spend and the current contract about to expire, they decided to take part in Coupa’s QuickStart sourcing program. Through the program, Coupa Procurement customers get a free 30-day trial of our sourcing module, along with free expert assistance to launch their first e-sourcing event using the tool.
For this event, we ran it in two-stages: an RFP to consider non-price factors, followed by a reverse auction to find the best price for the copiers. In a reverse auction, bidders compete by lowering their prices, as opposed to a forward auction where each new bid is higher than the last.
Setting the stage
To run a successful reverse auction, there’s a bit of work that has to be done up front. To start, I helped the internal team draft and send out the RFP to seven vendors, a mix of manufacturers and distributors, including the incumbent. It was a pretty straightforward RFP, just eight pre-bid questions to qualify the bidders and make sure they understood the rules and wanted to participate.
As often happens, after sending out the RFP, the incumbent supplier came back and said, "Hey, you don't need to do this electronic sourcing. Just re-sign with us, and we'll give you a discount." This can be an enticing offer, but what it usually means is that they know that if you put it to auction they'll have to reduce their price even more.
All seven vendors qualified and wanted to participate. Through the RFP we were able to figure out that some suppliers were bidding with accessories included, and some without. In fact, the biggest challenge for this event was getting all the bidders on the same page. The incumbent had supplied the firm with ten different models of copiers, so we also had to make sure everyone would be bidding apples to apples. Copiers come in so many shapes, sizes and speeds– from light duty desktop units to industrial copiers slightly smaller than a chest freezer – and can include scanners, printers and faxes or combinations thereof, so getting everyone aligned was a bit tricky.
We decided to include in the e-sourcing RFP a detailed spec sheet for each of these ten copy machines and tell them that they needed to quote for comparable machines in their initial proposal. This also included a pre-bid, which is helpful not only to allow the buyer to get a feel for the various price points, but to make sure that all the vendors know exactly what they’re bidding on. For example, we saw one vendor submit a pre-bid that was dramatically lower than the rest of the field. It turned out they thought they were bidding for a 12-month contract, when we were looking for 36 months. If we had skipped the pre-bid and they had gone into the auction with this assumption, it would have wrecked the bidding and we’d have to re-do the whole thing.
Pre-bids are for the buyers’ eyes only, but once the auction starts, you can use the e-sourcing tool to make bidding totally transparent to all parties. Suppliers can see how they rank against their competitors, which drives the competition. The buyer can also use the tool to allow for public comment, which really streamlines the process. If one of the bidders asks, “Should we bid on accessories?” we’ll answer to all suppliers, “The question was, should I bid on accessories? The answer is no, you should bid only on the copier," and everyone has the benefit of that information.
One advantage of using e-sourcing is that while it is timed, the auction won’t actually end until five minutes after the last bid, (or longer or shorter) if you want to configure it that way. This prevents sniping, in which a supplier swoops in at the final moment to undercut the low bidder, when that bidder may have been willing to go even lower. In this event, the auction went 20 minutes over the half-hour we’d allowed.
If you think this sounds like a frenzy of last-minute bidding, well . . . you’re not wrong. This is fairly typical in reverse auctions. Pitting suppliers head-to-head in real time creates a sense of urgency that often leads to a scramble to finish with the low bid. It’s a fun process, at least on the buying side, and enlightening for most buyers who’ve never done it before.
Last minute savings
In the end, we had two suppliers duking it out, shaving off price points well past the official stop time. Both ended up offering about 14 percent savings, which was much better than the incumbent’s initial discount offer.
The purpose of the reverse auction in this case was to get every supplier’s best price. Then it's ultimately up to the buyer to decide based on the pricing and answers to the RFP questions who they want to go with.
The reverse auction put our client in a great position to strategically award a new copier contract. They received two proposals offering substantial cash savings, and better yet, the e-sourcing tool condensed what is normally a weeks-long process of negotiating with suppliers into an afternoon. The buyer achieved significant savings, and because everything took place in the e-sourcing tool, they’ll have easy access to all the back and forth communication, pricing and other RFP information which they can re-use for subsequent events, saving even more time and money in the future.
Andy Chiang is the product manager for Coupa Sourcing. Prior to that, he did indirect and
direct sourcing for Gap Inc.
We’re about 15 years into cloud computing now, and one thing that’s become clear is that even with the proliferation of cloud solutions, on-premise software is not going away anytime soon. That means cloud solutions have to integrate with on-premise systems, especially with ERP. This has been the case since Salesforce burst on the scene in 1999, and over the years, cloud providers have become integration ninjas. Today’s cloud solutions can easily integrate with just about any on-premise or cloud solution.
However, many people continue to believe that integrating with cloud solutions is risky, expensive and unreliable. This is simply not the case. These fears are largely founded on past non-cloud integration traumas, either experienced first hand or heard about second hand. A quick search for integration failures in enterprise software turns up a litany of past failures and lessons learned, such as PC World’s 10 Biggest ERP Software Failures. Past experiences integrating non-cloud solutions have little or no relevance to today’s leading cloud providers.
Sequential invoice processing—paying invoices in the order they come in--is the default practice for many Accounts Payable organizations. But is it a best practice? No, because it eliminates the ability for AP to be strategic, and potentially save millions of dollars.
Here’s why: If your AP department is processing invoices sequentially, you're operating under the assumption that every invoice is equally important to your company. That's simply not the case. Invoices with pre-negotiated early pay discount terms or dynamic discount payment offers associated with them are exponentially more important to your company. It makes sense to do everything you can to process those invoices faster so you can get those discounts.
Hello 2015! It’s a new year, and you know what that means: overcrowded gyms, discarded Christmas trees lining the sidewalks, and of course, folks looking into their crystal balls to try to divine what the year ahead will bring. Last week, Coupa vice president of product development Darayush Mistry shared his thoughts on where procurement technology will head in the coming year.
Today we look beyond our four walls at what analysts and industry leaders have to say. One thing looks certain: With the economy looking up, 2015 promises good things for those tasked with powering business processes.
It’s January, and that means we’re getting ready for Coupa Inspire, this coming June 2-4 in San Francisco. Food is being tasted, DJs are being auditioned, speakers are being recruited and sponsorships are on sale now. Save the date because this is one event you won’t want to miss!
This will be our third Inspire, and over the past two years we’ve set a pretty high bar for ourselves, and we’re determined to leap even higher this year. Last year nearly 800 Coupa customers, partners, prospects and employees came together for two days of inspirational keynotes, learning, networking, and celebration – everything you’d expect from a user conference, but with some extra Coupa touches.
It’s that time of year again – prediction time. Prompted by these questions from Procurement Leaders, Darayush Mistry, vice president of product development for Coupa, peers into the future of procurement technology for the coming year.
Q. How do you think the expectations of customers will change in terms of what they’re looking for from procurement technology solutions in 2015?
Customers will look to take a more holistic approach to procurement with tightly integrated spend management solutions that make the function more strategic. Expectations for greater transparency and control will rise as customers become more sophisticated in the use of analytics for predictive and proactive spend control.
In yesterday’s post, I explained why it’s become a competitive imperative for companies to get smarter about sourcing contingent labor. Today I’ll explain how.
There hasn’t been a lot of transparency around pricing in the past, which has made applying sourcing rigor difficult. But, that is changing. There are ways to get this information, and companies need to then take that information and adapt some of their internal HR processes to be able to compare price and quality and make smarter, more strategic decisions about contingent labor.
Getting accurate pricing
One of the reasons we don’t have transparency is that up until now companies have mainly dealt with contingent labor through temp agencies and placement services, which have mostly dictated prices. The delta between agency bill rate and worker pay rate can be considerable, and it’s tough to know what the real going rate should be, how it is trending and how much above or below market you are paying.
The market for temporary and contingent labor is growing dramatically year-over-year -- roughly 7-10%, depending on what segments you look at. This is a trend that is likely to continue for the next five or six years. The Harvard Business Review in 2012 projected that eventually contingent labor will make up about 25% of the global workforce and we are well on our way to that. Companies that want to use contingent labor strategically and cost-effectively need to get a lot smarter about how they source and manage this category. In this two-part series I’ll explain why and offer my thoughts on a methodology for improvement.
This is a tough category to handle and historically procurement hasn’t paid much attention to it. They’ve engaged Managed Service Providers or implemented Vendor Management Systems to improve their performance and considered it handled. Or, they’ve ignored it completely, figuring it wasn’t that big and besides it’s “temporary”, so not worth the effort. Neither approach supports developing the institutional knowledge needed to manage the category effectively.
This needs to change. We will see more and longer “temporary” engagements, because there’s been a big shift in the temp and contingent labor market over last decade or so. For a long time, temp positions were mainly clerical or administrative. Then we saw a lot of expansion into the IT area for project-based work. Now globalization and the Internet have opened up temp and contingent opportunities for an even broader range of specialized workers.
New opportunity for companies and workers
It makes sense for companies to hire these people on a temp or contingent basis, because they get access to unique skills they don’t need all the time, and these are expensive people to have around if you can’t keep them active. But it’s not just companies that want this. The workforce does too.
Yep that’s right! It’s that time of the year - roundup
time. Time to reflect on the trends and topics in spend management of the past year, and what we learned.
We're listing your favorite posts from Coupa's bloggers from 2014, based on page views and social shares. This is what our readers found interesting, relevant and shareable over the last year.
1. Why using OCR for electronic invoice processing is like hitching a buggy to your horse by J.R. Robertson on Spend Matters
Although implementing OCR technology may seem like a time saving payments solution, it won't save you anywhere near as much time as full invoice automation, writes J.R. You'll still spend lots of time on manual processes, just different ones.
When was the last time you ran a sourcing event?
If the answer could be expressed in years, you should know about our Sourcing Quick Start program. Customers with Coupa Procurement can get a 30-day free trial of our sourcing module along with expert assistance to help you launch your first sourcing event.
I recently did this with a large media company, helping them conduct an RFQ followed by a thirty-minute reverse auction that saved them about $700,000 on IT hardware. I worked with the indirect procurement team there, who had been doing business with the same vendor in this category for over eight years. It was time for them to test the market, and test-drive Coupa Sourcing at the same time.
Prior to this, they did all of their sourcing manually using Excel to package and share
information. With the complexity of the IT category that hadn’t been sourced in nearly a decade,
it seemed like a perfect place to try bringing some new technology to bear.
How complex was the category? There were over 9,000 SKUs spread across numerous IT sub-
categories. You can’t put 9,000 items in a sourcing event;