Thursday, August 28, 2008
ELP Articles (Edition 3)
Posted: Thursday, November 03, 2005, 7:00AMAuthor: Sean Devine - Emptoris Inc.
Published in: Edition 3 (October 2005)
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KNOWLEDGE MANAGEMENT TAGS
"Technology", "Value Creation"
Technology: The real appeal of a holistic approach
Sean Devine outlines how the newest technological tools are helping to widen opportunities in the purchasing world.
Procurement organisations have embraced the reverse auction as the preferred price negotiation tool. However, many are frustrated by its narrow focus. The ideal approach would retain the feedback and transparency of reverse auctions, expanding the dimensions on which suppliers compete, whilst integrating decision factors into the feedback. This holistic approach would offer best value outcomes by reducing costs and improving quality, managing risk, and capturing innovation.
To capture these benefits, stakeholder objectives, preferences, constraints, and pricing options must be considered. This does not require exotic technologies but rather the convergence of the electronic RFP, reverse auction and optimisation based scenario analysis software.
Combining these technologies with best-in-class sourcing processes and expert resources can generate award scenarios with similar value profiles. The key technical ingredients are dynamic bidding, expressive bidding, transparent feedback, and optimisation-based scenario analysis.
- Dynamic bidding - Enables the bidding process to be conducted in a compressed timeframe. But while it is undeniably effective, the application of dynamic bidding is still limited to reverse auctions.
- Expressive bidding - Enables suppliers to describe the relationships between their capabilities, pricing and constraints. Today, buyers define how suppliers can express these components of their bids. In the future, suppliers will be able to suggest refinements to the buyer’s RFX design that the buyer can then fold into the analysis and introduceto all suppliers.
- Transparent feedback - Provides consistent feedback to suppliers derived directly from the bid data. This is most often seen in reverse auctions at the unit price level. But the technology can just as easily be used in the RFX process for price and non-price bid components.
- Scenario analysis - Enables buyers – and eventually suppliers – to calculate optimal decisions based on sets of inputs and defined objectives, and on the sensitivity of these decisions to changes in inputs. Scenario analysis has long been relied upon when sourcing transportation. Recently, the technology has seen broader application because of its ability to handle a wider variety of bids and constraints.
The most exciting and effective negotiation innovations combine all four technologies. Innovation will be focused on the application and integration of these capabilities instead of the discrete capabilities themselves. For the supply management practitioner, things are really starting to get interesting.
We are ushering in the next wave of strategic sourcing – and the success stories are proving compelling.
Sean Devine is director of client services at Emptoris, provider of enterprise supply management solutions, www.emptoris.com
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