Despite the widespread use and success of reverse auctions, Ellen Terchila, a consultant in the Spend Management Services group at Ariba, says many procurement pros still struggle with when to use them, when not to use them, and what categories to target. So, I asked Ellen to recap the key take-aways from a session she held on reverse auctions this week in Nashville.
***This video was shot at the Ariba User Conference in Nashville on 10-12-09. All of the video from the event can be found in a Playlist here.***
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
Our North American category management team hosted a Top 5 Categories to Source Now webinar last week (replay here). Supply Excellence contributor Pat Furey, set the stage with a discussion of several manufacturing, GDP and consumer indices, as well as a WSJ consensus forecast of economists, that all appear to show that the economy is “going to turn the corner this quarter in the US.”
Welcome news to say the least. But for those of us in the sourcing and procurement world it also means … the clock is ticking on buyer’s market conditions. Fortunately, that clock is still ticking pretty slowly and as Pat said, “opportunity still abounds for buyers.”
What 5 categories does the team recommend focusing on this quarter?
Tim Cummins, President & CEO of IACCM, discussed their organization’s recent survey results, which found a majority in contract/legal roles feel their company does not focus on the right types of risks.
***The video interviews from the NY, Chicago, San Francisco and London Ariba LIVE World Tour events are now in a playlist on YouTube.***
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
I attended SupplyExcellence contributor Drew Hofler’s session today on Strategies for Optimizing Working Capital. Drew went over the business case for why companies should consider working capital management strategies and presented an interesting graph, showing the relationship between DPOs and a sliding scale model of the discount rate. The replay is available now (register required).
Drew cited three categories in particular that are good fits for companies looking for dynamic discount opportunities among their suppliers; consulting, legal services and construction. I followed up with Drew after the session to clarify why these categories were particularly suited for dynamic discounting. Drew’s explanations for each are below:
Consulting - “Consultants are measured for bonuses, etc. on a quarterly and end of year basis and will often be willing to give discounts to accelerate their cash collections during those cycles.”
Legal services - “They are high margin businesses that have the room in their price to do so.” And as we’ve discussed recently, it’s a buyer’s market for legal services. So, firms are likely willing to considering offering dynamic discounts to earn or retain your business.
Construction -”The industry is a bit different in that they are an industry of subcontractors. So you have companies that always have cash flow issues, yet they need to pay their people. Therefore they need to collect their cash.”
In each case, the supplier finds that accepting less from the buyer - in the form of a dynamic discount for early payment - is worth it, since it suits their incentive plans or increases their liquidity. As Drew explained in his presentation, there are many factors a buyer must take into consideration to determine when and where dynamic discounting and working capital management will apply. But if your spend is high in the three categories above, I’d recommend watching the session replay.
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
Yesterday’s presentation by Heinz VP of Procurement Christopher Stockwell (replay & blog post) on why it’s a good time to target savings on indirect spend set the stage for this morning’s breakout session - Indirect Spend: What to Source Now. In the session, Diana Brown, a Director in Ariba’s Spend Management Services group, walked through the quick wins, strategies and savings potential in three categories:
Marketing - This department is notorious for two things; spending their entire budget (or more) AND resisting anyone’s interference in creative decisions. But Diana says you can make headway in marketing spend and gain the department’s support by deferring on creative decisions, building an objective scorecard process, and playing “the bad guy” in negotiations with suppliers. She also advises getting some quick wins with less creative by categories like promotional materials. (In another session yesterday, a presenter advised reinvesting savings back into the department you are working with and I am sure marketing would be very receptive to this idea).
Travel Costs - Citing a savings opportunity of 7-11% for a category that typically consumes ~3% of company revenues, Diana advised attendees to target three travel categories; agency services, hotels, and meetings management. Updating policies, monitoring compliance and rolling out an effective change management program for travel can also greatly increase the chances for success.
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
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