Archive for May, 2008
Hardly a news story but this week’s Supply Management has a news story headline “Councils: most buying goals met“.
One of the goals listed in the article that was not met was the use of e-marketplaces.
Each council was also meant to be using an e-marketplace by 2006, but latest figures show only 22 per cent have met this target.
The traditional response to such a dismal failure to adopt a new technology is: “more change management, please, doctor”. As if the technology users are always to blame for being to blinkered.
But are people always and everywhere scared of new technology? I don’t think so. People are not afraid of adopting new technologies if those technologies are good. Excel. Mobile phones. SMS. Email. Social Networks. Online airline check-in. Google. Online banking. Etc etc. (yes, I am old enough to remember offices before Excel. I spent some time working as an accountant doing 4 column trial balances on paper. That was horrible).
Oh yes iPods. Good technology. Vista. Not as good technology.
You can make your own lists.
To come back to the SM article: if an e-marketplace helps buyers buy stuff better then of course they will use it. But if it is just a pain in the a** to use then they will stick to email and Excel. And don’t talk about nebulous downstream process improvements, puh-lease. People want process improvements now, not some unidentified time in the future.
When a fly keeps banging its head against a pane of glass trying to get out of your house, it’s obvious what the fly needs is a different approach: an open window. The same is true in enterprise software. Software developers: stop bashing your heads on the change management window. Do something to your software so the users don’t need change management to want to use it.
The exciting news is that there are some people who are daring to do the undoable. Thingamy for example has the audacity to be challenging not only the rigid process-driven ERP mindset prevalent in the industry, but also how we do something as basic as accounting. Will they succeed? Who knows. But the more people who take Sig’s lead and try to re-invent enterprise software, the more chance we’ll have of getting those buyers all happily using their e-marketplaces.
Reverse auctions as we we know them today started in the mid 90s. So now seems about the right time for them to be going through their poor, misunderstood phase.
Tim Cummins writes a great analysis of how buyers reap what they sow: screw your suppliers when times are good and you can’t expect your suppliers to queue up and looking for win-win opportunities when the markets move against you.
Two years ago, IACCM was warning its members that the change was coming and that suppliers were shifting their loyalties – for example, they were investing their marketing dollars in emerging markets, rather than their traditional (disloyal) customers.. We alerted buyers to the fact that they would pay a price for alienating the supply base. But the good times rolled on – commoditization, reverse auctions, confrontational contract terms – these were just some of the ways that buyers showed their lack of loyalty to the traditional supply base in their haste to grab low prices and exert their dominance.
A timely warning, and nothing contentious, you might think. But now read the paragraph again and see how “reverse auction” is equated with “showing disloyalty to your suppliers”.
This is to put the cart before the horse. It’s (short-sighted) buyers who screw suppliers, not reverse auctions. And don’t forget that short-sighted buyers are able to screw suppliers with all kinds of methods: you certainly don’t need an auction to demonstrate disloyalty to your suppliers. You can screw a supplier perfectly well using certain contract clauses – but that is not to say that contracts are a bad idea.
From my own experience: I recently awarded a contract for software development services via a reverse auction. I have a good relationship with both the current and previous supplier. I believe this is because I was open and up front during the whole process (including explaining to the incumbent why I was going to market). The reverse auction in fact helped the decision making process be more transparent. And the contract was far easier to implement than would have been the case without an auction.
In that example the reverse auction helped both with achieving the right price and with helping build the supplier relationship.
One day a long time ago I was trying to convince my CEO to start a company blog; he ended up convincing me to try one myself. To see what would happen.
So I did. And looking back over these past 20 months I can say it’s been great fun. And a very positive experience in a number of ways:
1. I’ve met physically and now count among my friends some great individuals who are as passionate about what they do, as I do about what I do. Like Jason who I have the good fortune now of crossing paths with whenever I’m in Chicago.
2. I’ve learnt about new technologies that are now making TradingPartners more effective at product development. In particular Rails (which we use for prototyping) … thanks Doc for posting about Coupa.
3. I’ve learnt a lot. “When Doc Searls first talked to me about blogs being provisional, I learnt something important for myself. Being unsure is a useful prerequisite for learning.” Thus spake JP Rangaswami and he’s right. Blogging ideas, and discussing them is (for me) a great way of thinking my ideas through properly, developing the good ones and jettisoning the bad ones.
4. It’s also been very flattering to discover that I made it onto page 1 of Google for a search on “eauctions” (in the US only, admittedly – from Google in the UK I am nowhere but even so let me have my moment of glory)
However, it has been over a year and a half that I’ve been doing this. Like so many other people with a technical bent, I have a fairly short attention span and always want to figure out how to do/make things better. So while I was on holiday recently – in particular whilst spending an afternoon walking round the near-deserted remains of Rome’s ancient port, Ostia Antica - I had a chance to mull over the direction of the blog and try to figure out where next for Where Next.
Net result: I’m thinking about forking the blog into two: of taking one blog down a supply chain route while focussing another one on the life of a tech company CTO.
With two blogs in play I’d be posting even less frequently than today. But it would mean each would be more focussed which would be more satisfying for me, and hopefully also more usable for readers.
I’ve come up against 2 issues:
1. If I want to use my own domain name then can I still host on WordPress or would I need to arrange my own hosting?
2. What a pain it is to get a domain name. They’re all being squatted, or have been registered and then forgotten. I’ve dropped 2 emails to registered owners of (apparently unused) domain names and have yet to receive any kind of reply. Not even a “No, it’s not for sale”.
http://money.cnn.com/news/newsfeeds/articles/marketwire/0396537.htm has a list of the Top 100 Most Influential Technology Vendors for 2008 (via Deal Architect).
Ariba is at at a respectable 38.
Interestingly Netsuite is only at 85 (Salesforce is at 8). Shows that despite all the attention heaped on the CRM guys, that there are plenty of other players out there adding value, quietly. For example – check this graph from Compete.com which bizarrely enough shows (relatively) masses of hits for Netsuite, a smaller number for Salesforce.com and a “hey, who the heck are you anyway?” line in blue at the bottom for Ariba.
Nevertheless any publicity that gives a little more recognition to Ariba, and by extension eProcurement, is a good thing as far as I’m concerned. Perhaps as an industry we aren’t as sexy as a Salesforce or a Netsuite in terms of hits, but we can hold our own in terms of value.
Always good to see some (positive) coverage of eAuctions in the trade press. Here’s an article from Purchasing.com about BlueBird’s use of eAuctions. For non-US readers, Blue Bird make those iconic yellow N. American school buses.
Blue Bird procurement uses an e-auction tool to help consolidate the company’s supply base and transform purchasing.
Whose e-Auction tool? TradingPartners’, of course!
But you have to read the article carefully to get the full story. On the one hand Purchasing says
In the year since he assumed his current post with the bus manufacturing company, Marshall has used an e-auction tool of Trading Partners in Chicago to negotiate pricing with suppliers of safety supplies, crib supplies, corrugated packaging and office supplies. While the lowest bidder doesn’t necessarily get the contract—quality and delivery are equally important criteria, he says—the tool has helped to reduce costs in some spend categories by 30%.
Read this paragraph and you’d get the impression that Blue Bird bought a license to use a piece of software to run their auctions on.
But later on Purchasing says
Marshall, who has more than 30 years experience working in purchasing in the auto industry, views Trading Partners, which has conducted more than 20 e-auction events for Blue Bird, as an extension of his purchasing team and sought its expertise when analyzing the company’s spending. Blue Bird’s database is huge—there are approximately 30,000 part numbers on an average bus.
In other words – it’s the service that Blue Bird has bought into, not just the software.
This is an important distinction.
If you buy software for your e-auctions (which may well be pretty cheap), then unless you have some pretty dedicated people on board, you will struggle to achieve the adoption levels you hoped for. Strategic Sourcing (and, by extension, Auctions) is a very different beast to processing purchase orders. Strategic Sourcing is much more of a “Barely Repeatable Process”, to use Sig’s phrase than the kinds of “Easily Repeatable Process” that ERP-biased software houses build their software around.
So, until some BRP-style software for eAuctions turns up you should consider carefully whether what you really need is the software, or whether what you really need are the results. If it’s results you are after then think seriously about buying the service rather than just buying the software.
Paul Ferraro recently left a comment asking about reverse Japanese auctions.
I can only scratch the surface in a single blog post, so if you’d like to discuss this more then please leave a comment and we can continue the conversation. Also – I run workshops at TradingPartners every month (and also occasionally at CIPS) so if you want to dig further into different types of reverse auctions feel free to drop me a mail.
In brief the question was: “Are reverse Japanese auctions only appropriate when there is a small number of suppliers bidding?”.
Briefly the answer is “In theory a reverse Japanese auction will work just fine, all the time. But in practice you’re best off keeping to Japanese auctions where there are fewer suppliers.”
Some initial comments regarding reverse Japanese auctions:
1. I once saw an eAuction manager just after he’d run a reverse Japanese auction with 8 suppliers in. Haggard is a good way to describe him. The reason is that you have to collect up to 8 bids at each price level before decreasing the price. What with internet connections, technical issues at the supplier side etc you can pretty much guarantee that one supplier will need additional coaxing and assistance to prevent them from missing a price decrement. A reverse Japanese auction can be pretty hard work for the eAuction manager to run because it relies on the eAuction manager to drive the competitive element.
2. I was talking to a UK body recently who are intending to run a reverse Japanese auction on a supply base of 200 suppliers (due to the vagaries of the category). I hope that with a bit of investigation a better way of running this auction as a reverse English auction will transpire.
3. We are seeing a lot of success with reverse Japanese auctions at TradingPartners but I do wonder sometimes whether weighted auctions would be better in some of the cases where a Japanese auction was used. (e.g. in my example below where you could apply a weighting to reflect switching costs).
But to get back to Paul’s questions. I’ll use a highly simplified example to illustrate what I mean when I say that reverse Japanese auctions are most appropriate when there are fewer suppliers:
Suppose you have 2 potential suppliers, Incumbent Supplier and New Supplier. You are currently buying from Incumbent Supplier and she knows full well that it is going to cost you about €30,000 to switch supplier, not to mention the hassle factor involved from your side of things if you have to switch. New Supplier, on the other hand has no idea of what these numbers are.
First let’s run this as a reverse English auction, with an opening price of €400,000.
New Supplier wants to win the business so places a bid of €390,000 early on in the auction. What happens next? Incumbent Supplier won’t bid – she knows the business is still safe with her. Nor will New Supplier bid more aggressively – he thinks he’s in the lead. So the auction ends, Incumbent Supplier keeps the business and New Supplier is left with a bitter taste in his mouth about this whole auctions business.
Now let’s run this is a reverse Japanese auction, again with an opening price of €400,000.
Buyer drops the price to €390,000. New Supplier and Incumbent Supplier both have to accept this price level, without waiting to see who else accepts first. And they both know that they need to accept the price level to stay in the auction. They both accept. The buyer then drops the price to €390,000. etc etc.
Now let’s change the scenario. Instead of 2 potential suppliers there are 20 potential suppliers. Even in a reverse English auction you’ve now got sufficient competition amongst all the suppliers to encourage competition and to bring the incumbent into that competition
Obviously the example above is a trivial but I hope it gets the general point across – that reverse Japanese auctions are most use when you have a small-ish number of bidders. (In reality you might use messaging, for example, to stimulate competition even with only a small number of suppliers).