Monday, 9 May 2011

Why are we doing what we're doing?

Billions of pounds are tendered every year on goods and services. Procurement as a profession is becoming an ever more important focus. Companies realise that in these times, coming out of a recession with increased global competition, an efficient procurement strategy can mean the difference between profitability and receivership.

E-procurement entered the scene in the nineties with the dotcom boom and e-markets. It took time for the real value to come to light after the initial surge and consolidation. One technology which emerged in assisting companies realistically and effectively at reducing cost was the reverse auction.

However, due to procurement professional’s level of understanding of this new technology, the primary method of delivering benefits from auctions was via consultancy. Companies emerged offering the possibility of outsourcing this activity and their benefits came from their skilled resource, cutting edge methodologies, systems and comprehensive supplier databases.

With the general understanding of reverse auctions vastly improved within the procurement community and with universities teaching about e-procurement as part of their curriculums, more and more procurement professionals want to run their own tenders via reverse auctions.

Some of the companies have realised this and are starting to sell their software stand alone or as an add-on to a larger Enterprise Resource Planning (ERP) system. This software is still expensive, cumbersome and requires assistance in best practice and training.

Thus there is now a gap in the market for a commoditised product. The basic concept is simple as there is a paradigm shift from ‘luxury’ based software, which requires a third party, to a commodity product which any professional buyer can use.

Large companies such as Ariba are starting to notice this but also smaller, nimbler companies such as ourselves, Market Dojo, are realising the potential.

This new breed of online hosted software is not radical in overall concept but in how it is designed and positioned in the market.

The new SaaS offerings are:

• Functional and user friendly
• Embedded with professional processes
• Offering a clear pricing structure

By offering a combination of the above features, reverse auctions are being taken to the next stage in their evolution. Not only are they building on the understanding already in the marketplace, but these tools can easily be opened up to any buyer by providing a very low barrier to entry with respect to cost, usability and best practice.

As with most services that start out being used only by experts, reverse auctions now find themselves being commoditised. One only needs to looks at complex software such as engineering simulation, which is moving from the hands of engineers to the CAD Jockeys, or web design and search engine optimization tools which started out with a plethora of specialized agencies but are now in the hands of consumers. Accountancy and CRM solutions have moved to the online model such as Clearbooks and Zoho opening up complex applications to the SME market. This is the natural progression of software in our technological age.

This new breed of companies such as ourselves and the new offerings from Ariba demonstrate the new wave which is surely just a springboard for even greater innovation.

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