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London Calling: See Supply Management 2.0 in Action

April 19th, 2007 · by Tim Minahan · 1 Comment · Supply Management 2.0 Forum, sourcing, supply management

Supply Excellence’s first-year anniversary is fast approaching. That means it’s time to gear up for the Supply Management 2.0 Forum series that started it all.

Back by popular demand, the Forum series will feature case-study presentations from some of the world’s leading supply management organizations. (Check out the Supply Excellence summaries of the best practices shared at last year’s Forums here.) The Forums also offer a unique opportunity for supply management professionals from a variety of industries to network and share practical strategies to speed and sustain supply management performance improvements.

The first stop on the Forum tour is in London on Tuesday, April 24th. I’m happy to say that attendees at this session will hear first-hand how ITT Industries is using advanced sourcing techniques, such as optimization and flexible bidding, to control costs in increasingly inflationary and tightening supply markets. Attendees will also get a sneak peek at the supply management transformation initiative underway at global financial powerhouse Barclay’s.

If last year’s performance is any indication, this will prove to be a highly informative event and and excellent opportunity for networking with your U.K. supply management peers. Last year, ITT’s e-Sourcing and Strategic Purchasing Manager Jessica Dunlop got rave reviews for her candid tips on how to leverage reverse auctions — and what pitfalls to avoid. Here’s just a sampling of her recommendations:

  • Lotting makes all the difference: “We realized we don’t have to bundle all our business into a single auction to get the best price,” said Dunlop. “The vendors will identify what meets their capabilities and provide the best price.” It is important to note that, regardless of the lot structure, ITT does not typically require vendors to bid on all items.
  • Four is the magic number: In its first reverse auction for machined parts, ITT included only three vendors. Dunlop said this number didn’t provide sufficient competition to encourage aggressive bidding.
  • Better trained suppliers, make more competitive offers: Dunlop also said that, early on, many suppliers were confused about the auction approach, bidding aggressively to be the lowest price, even though ITT had said it would award the business on multiple factors to get the lowest total cost. ”One vendor bid away all his margin, which is not a sustainable or preferable business for him or us,” said Dunlop. ITT has since placed a strong emphasis on educating suppliers on the selection criteria and award strategy to ensure competitive (and sustainable) bids.
  • Clearly define the rules of engagement — before the auction begins: In one auction, a winning supplier later tried to place conditions on its offered pricing after the event closed. To guard against such post-event bartering, ITT now uses prerequiste gateways and knockout questions to ensure that suppliers agree to all conditions prior to the auction and to avoid any surprises or disputes after award. 
  • Beware of sour grapes: After its second auction, ITT noticed that one supplier that was well out of the running kept placing bids to trigger extension periods and force other more qualified and competitive vendors to continue to bid down their price. ITT eventually closed out the auction and later revoked this disgruntled vendor’s auction privlidges. Dunlop advises constant monitoring of auction events to discourage such antics.
  • Spending time with losers, can create great winners: ITT discovered telling vendors why they did not win the business can provide much-needed motivation (and insight) for self improvement. “We’ve had vendors go out and buy new machinery or do joint-ventures in Asia and come back much more competitive and win our business,” said Dunlop.
  • Involve Asian vendors, whenever possible: ITT has also tracked a correlation between bidding activity and the participation of Asian suppliers, particularly those from China. “Involving Asian vendors in an auction can help force local vendors to be more aggressive competitive.”

Don’t miss out on this year’s Supply Management 2.0 Form in London. The event is near maximum capacity, but there are a few seats left. Register here. I hope to see you there.

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1 response so far ↓

  • 1 Supply Excellence » Supply Management Success Strategies for 2008 // Jan 3, 2008 at 12:17 pm

    [...] Adopt alternative negotiation approaches: With the prices of certain commodities continuing their skyward rise, buyers are no longer in the driver’s seat in many markets. Wringing the best value from negotiations with suppliers requires the use of alternative negotiation methods, such as flexible bidding or optimization-based sourcing, which allows suppliers to differentiate their solutions on multiple parameters beyond price and enables them to suggest alternative bundles or offers. Companies like Sun Microsystems and ITT Industries have actively embraced such alternative negotiation tactics. Several buyers noted that they were engaging in longer-term commitments with suppliers competing in tighter supply markets. [...]

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