Procurement

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Beyond e-Procurement, RFx, Auctions and Catalog Requisitions, the new generation of sourcing solutions is:

NEED-BASED SOURCING

Traditional RFx are time consuming and resource intensive, causing end-of-year backlogs. Reverse Auctions are based on price only and thus deliver the cheapest solution that barely meets the specifications, limiting their adoption. These specification-based solutions are marred with flaws. By shifting the sourcing paradigm to business needs, Procusoft’s technology delivers a compelling ROI by enhancing your procurement processes to

TRANSFORM THE WAY YOU SOURCE

In today’s reverse auctions, the buyer sets a minimum acceptable set of specifications. To reduce their costs and submit the lowest possible bid price – the only variable open to the bidders, the sellers lower their specifications to just meet the minimum target specifications. The result is the cheapest product that barely passes the specification threshold at the lowest possible price. The old saying “You get what you pay for” has never been truer.

 

Imagine a reverse auction where the sellers can compete on EVERY criterion that the buyer cares about, not only on the price. Imagine a system that puts at the buyer’s finger tips the Subject Matter Expert’s knowledge to optimize each purchase for the intended recipient. Imagine sellers submitting their proposals and assessing in real time where they stand and what features they need to enhance, competing on ALL features of value to the buyer, not just price. With such a system the buyer ends up getting the best product that most closely matches (or exceeds) their needs at the lowest price (not the cheapest product at the lowest price). In other words, you receive the greatest value for your money.

Unlike traditional reverse auction where qualified sellers bid on price only, with Procusoft your suppliers compete on all the criteria you care about, thus delivering the best value for each purchase. What’s unique about our solution is our Proposal Assessment Engine that can compare apples and oranges in real time based on your trade-offs and leveraging subject matter expertise captured in the system.

In summary, instead of bidding on price only, your suppliers compete on all the criteria you care about, thus delivering the best value for each purchase.

Q&A:

What is the difference between sealed bidding (RFP) and online reverse auction bidding?

The fundamental difference between an online bid and a sealed bid (RFP) is that in an online reverse auction bid, bidders receive feedback, in real time, about how their bid compares to that of other bidders and are given an opportunity to make their bid more competitive if they wish. Online reverse auction bidding provides a healthy competitive environment. Because decisions are made in real time they eliminate the subjective aspect of proposal assessment thus supporting fair and ethical competition in the market places from which you procure goods and services. It ensures market information is made available to all participants during the online bidding event. Most importantly it provides bidders with the ability to assess their offer in real time thus reducing the element of surprise as well as delivering timely results to the solicitation process. There are very few reasons why, with time, online reverse auctions will not make RFP a sourcing tool from the past.

What is the difference between standard online bidding and multi-criteria bidding?

There are two principle reverse auction formats: Standard (no normalization) that base the selection on one factor: price, and multi-criteria bidding where all value-add (non-priced) factors of a bidders proposal (e.g. technical merits, past performance, experience, quality, time table etc) are considered in real time.

What is the difference between transformation bidding and need-based sourcing?

There are two multi-criteria bidding formats: transformational bidding and need-based sourcing. Although the purpose of the transformational and need-based sourcing is similar, there are three main differences:

1. The Transformation Algorithm: While both bidding formats allow all value-add (non-priced) factors of a bidder’s proposal (e.g. technical merits, past performance, experience, etc) to be considered in real time, in transformation bidding the prices are normalized based on an underlying assumption of simplicity and often linearity (Transformed Bid = Factor x Raw Bid + Adder) and by combining high level weighting factors and the transformations in a single conversion formula/algorithm. A “true best value reverse auction” comprises a criteria behavior algorithm that is typically knowledge captured from SME in the form of a set of rules or an algorithm. It is rarely linear and better reflects real life situations. It is often parameterized in the sense that it can be repurposed from a commodity or a service to another without programming. It is separate from the tradeoffs (or weighing factors). For example Price is not a linear function. Price is linear only within a certain range and then it becomes quadratic. This means that within a buyer’s threshold price, a buyer will be willing to tradeoff price for other features of the acquisition. While beyond that threshold price a buyer will need significantly more value to compensate for a slight increase in price. These criteria behavior can accommodate complex functions that take into consideration various dynamic parameters that can tie back a line element to the value of another.

2. The Transformation Mechanics: Transformation bidding requires that the technical submission (submitted prior to the online auction) together with clarification and qualification discussions be used to determine normalization (transformation) factors for every auction. Bidders are told the elements used to determine transformation factors, although not necessarily the algorithm that is used – just as with a sealed bid. This means that every auction requires an RFI and a mechanism of structuring and programming the transformation. In contrast, need-based, best value reverse auctions require capturing the SME knowledge once, at system setup, only. This means lengthy discussions and market research and resource consuming RFIs are no longer required. By separating the SME Expertise from tradeoffs, need-based systems deliver unprecedented ROI. With true best value reverse auctions, the SME’s knowledge is captured one time up front at system set-up time. This delivers unprecedented savings in resources at every auction.

3. Process: Just as with a sealed bid tender process, transformational bidding follows the same steps. After a lengthy market research where ALL products must be analyzed, a buyer conducts an RFI to determine the various transformations. Then detailed specifications, tender documents and technical/commercial terms are issued before engaging the bidders. Transformation Bidding is an alternative method of price determination in the tendering process; all other aspects of a traditional tender process, such as pre-qualification, issuing of Invitation to Tender, Technical submission, and final award, remain the same. All aspects of a supplier’s proposal, including non-priced factors must be fully evaluated in order to ensure that the final award decision is based on overall best value proposition. Whilst in a sealed bid these aspects would normally be evaluated after the submission of the price, in a transformation bid these have to be evaluated before the price is known and incorporated into the auction. However the evaluation model and final award decision would be the same in both cases. In addition, a Request for Information or a Request for Proposal (sealed bid) can also be conducted online.

How do the transformation bidding and need-based reverse auction processes compare?

The process of a “true best value sourcing” solution is radically different. It starts with a rapid market research. Thanks to Procusoft’s Inference technology only a couple of solutions need be analyzed to derive the user’s tradeoffs and preferences. There is no need to pre-qualify bidders as the pre-qualification process is integrated naturally in the selection process as being part of the criteria a buyer is willing to tradeoff to various degrees against other aspects of the overall solution. The burden of performing extensive market research to detail the specification of the service or commodity sought is passed on to the bidders. In addition to reducing the resource requirements and shortening the cycle, it also simplifies the process and makes the system easier to use, resulting in faster adoption of the reverse auction system. While transformation bidding requires that transformations are determined at every solicitation based on the RFI responses, “true best value sourcing” does not have the same requirements as it relies on the SME’s knowledge that is captured once at the beginning when the system is set up instead of at each auction. Finally, this clarity at an early stage can often lead to a more accelerated tender process. In summary, instead of weeks to cover market research, RFI, transformations, pre-qualify bidders, outline the detailed specifications etc.., a need-based sourcing lasts a few days at most. Most importantly, need-based sourcing reduces the human resources required from hundreds or thousands of hours to tens of hours. This is achieved by a system that also delivers increased traction with users, as well as enhanced results and unprecedented savings.

Why Buyers like true need-based sourcing?

  • Better value and greater savings through increased competition.
  • Saves significant resources
  • Standardized selections and awards

Why Vendors like need-based sourcing?

  • The transparency of a need-based Reverse Auction event highlights the integrity of the buyer’s sourcing decisions.
  • The Online Bidding approach promotes the more timely award of contracts.
  • Standardized and transparent selection process

Support Tool for Strategic Acquisition Decisions

Strategic decisions are by nature very complex. They often involve acquisitions where the outcome is yet unknown. For example a research project about an impregnable shield against nuclear weapons. In these cases specifications do not make sense because there is no sense in drafting a specification when the outcome is unknown. This is the type of acquisition that cannot be served with the specification-based type tools.

Features of a Strategic Purchasing Decision Support System

  • Collaborative, Expert Assisted Decisions: Optimal decisions are made by capturing expert knowledge in every facet of the decision process. Procusoft raises the level of procurement competence by capturing, storing and sharing your organization’s experts knowledge across the organization.
  • Complex Criteria: Procusoft goes far beyond simple weighted spreadsheets. It enables Program Managers to articulate the impact of the various criteria on their selection (i.e. extent to which additional memory enhances laptops). This expert knowledge optimizes the acquisition decision.
  • Real Time Repurposable Knowledge: By capturing the expert’s know-how in the system and making it repurposable, it becomes part of the corporate intellectual assets. Since the expertise is part of the system, when the experts depart your organization, their expertise is not lost.
  • Understanding and Justifying a Decision: Often, procurement systems are used to justify or understand a decision. Given a selection, Procusoft’s inference engine will highlight the relevant criteria and measure the tradeoffs that yield the desired results.
  • Analyze Decisions: Procusoft’s ability to rationalize, collect, and store insight into users’ selections and then analyze them to learn from and optimize them is invaluable. The high cost of traditional techniques stems from the need to continually program the system to assess new alternatives.