Supply Excellence — An Ad Worth Reading

An Ad Worth Reading

March 22nd, 2007 · by Tim Minahan · 1 Comment · best practices, sourcing

If you’re like me, your e-mail box is loaded with newsletters, research alerts, event invitations, and other “news” sources that seemed like a good idea to subscribe to at the time. These virtual infomercials do occassionally carry some valuable nuggets on best practices, category trends, or tips you can use to improve your supply management operations.

Yesterday’s mail call included one such gem. Buried in yet another direct mailer from Aberdeen Group (How many reports can these guys put out anyway?) was an intriguing promotion to download the latest benchmark report: Winning Strategies for Transportation Procurement and Payment report.

According to the ad, the key theme of the study, which was based on a survey of 380 companies, is that best-in-class performers are far more advanced in their sourcing and carrier management approches than their peers. Specific stats cited in the ad indicate that best-in-class companies are:

1.6x as likely to let transportation carriers bundle and unbundle lanes in their responses.
1.7x as likely to use multiple bidding rounds with their carriers
1.4x as likely to use a procurement application rather than spreadsheets or manual processes.

These findings reinforce the concepts put forth in yesterday’s post on best-value sourcing and supply management. To get beyond best price, savvy supply managers are embracing alternative negotiation methods and advanced sourcing automation and decision support tools that enable discovery and assessment of a myriad of price-, non-price, and conditional factors. These tools also enable supply management to better engage other stakeholders in sourcing and supplier management processes and to better align supply management strategies with the goals of the business.

The above stats from the Aberdeen’s transportation report are not surprising. Sourcing optimization tools and flexible bidding methods are most widely used for a discrete number of complex categories — primarily transportation and packaging — that have multiple variables, inputs, processes, and handoffs or parties involved.

For example, last month I was speaking with a global airline alliance that conducted an optimization-based project for ocean freight service, which aimed to balance the requirements and preferred supply strategies (i.e., selecting a single global ocean freight carrier versus a multiple regional shippers) of its members. The project assessed multiple variables, including transportation charges, drayage, leadtimes, delivery performance, and tariffs and landed costs across various routes. Such collaborative and complex negotiations would have previously been a labor-intensive process, taking the better part of a year to complete. With optimization-based support, the project was completed within two months — from initial requirements collection through final award decision.

However, savvy supply management organizations are beginning to apply the above methods to a broader range of spend categories. Consider the transportation services provider which last year conducted a large sourcing project for pallets and containers used across several dozen distribution centers. The carrier first applied “traditional” e-sourcing methods, using electronic request for information (e-RFI), followed by e-RFQ, and a standard, online reverse auction. Still unhappy with the results, the service provider invited back suppliers that competed in the auction for anouter round using both flexible bidding and optimization-based analysis.

The move paid off: Suppliers were able to create alternative bundles, volume break discounts, and delivery schedules. The carrier was able to use optimization-based decision support tools to assess multiple scenarios before selecting the award allocation strategy that best met its goals at the lowest total cost. Overall savings were at least 10% greater than what the carrier had achieved via reverse auction. And the award strategy mitigated risk by spreading the business across multiple suppliers and leveraging flexible payment terms.

There are a number of other examples where companies have applied such advanced sourcing methods to seemingly untraditional spend categories, such as software development and testing, printing, contingent labor, and, even, consulting. If your e-sourcing program has stalled or supply markets are tightening, consider applying some of these alternative sourcing methods. You’ll be surprised at the results.

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