Tuesday, 25 September 2012

Bidding for produce

Editors note:  Featured in FPJ Freshinfo, story  published: Fri 27 Jul 12 by David Burrows

Little hard data exists over the method of retailprocurement via e-auction, but the practice is known to go on. David Burrows asks how widespread it is and what impact it has on the supply base

Online shopping may well have increased 14 per cent and passed the £50 billion mark last year, but buying groceries online remains a turn-off: nearly half of all adults have never bought food online, while over a quarter say they never would, according to a survey this year by YouGov and VoucherCodes.co.uk. But while supermarkets work to get more people shopping ‘.com’, their procurement teams are apparently embracing online buying in a bid to source cheaper products.

There is mounting concern that supermarkets are becoming more and more reliant on theuse of e-auctions to buy fresh produce. In its Catalyst for Change report, published last week, the NFU exposed several examples of “poor business practice”. The list, based on first-hand discussions with its member growers and intermediaries operating across all sectors of the horticulture industry, included reports of verbal margin agreements and late payments, as well as an increase in frequency, length and depth of promotions. Intriguingly, it also identified a rise in the number of online auctions as part of a culture ofshort-term trading that “still prevails because of the inherent level of competition that existsto supply products to retailers”. The increasing popularity of e-auctions, said the NFU, is “compromising the ability to establish meaningful business partnerships in the fresh produce sector”.

Indeed, an insider told FPJ recently that e-auctions are just one of the methods retailers adopt at certain times to get the lowest price. “They switch from one supplier to another and try to get them cutting each other’s throats, then they will maybe put an order for 5,000 trays up for e-auction and invite their regular suppliers each to bid for it in addition to their regular order and often add in a wildcard – a different supplier – just to test them out.”

But are e-auctions rising in popularity as the NFU suggests? Are they bad for business and bad for fresh produce? And do they damage supplier-buyer relationships?

Online auctions have been around for over a decade now and their functionality and complexity have similarities with eBay: they allow people to bid against competitors. But, unlike eBay, the longer the auction goes on, the lower the price falls. This is why the NFU has raised concerns.

Indeed, much of the supermarket PR spiel focuses on ‘strong relationships with growers and suppliers’ and a fair deal for farmers. The British Retail Consortium, for instance, says its members are committed to “working positively” with all parts of their supply chains, including farmers. “It makes sound business sense to have quality suppliers who are efficient and successful,” says a spokesman. “There’s a place for ‘spot’ markets in some products but what retailers and their customers rely on are long-term sustainable relationships that guarantee reliable supplies of high-quality, safe food. We don’t think our members are making much use of this sort of auction,” he adds.

Others disagree. “Auctions are rising in popularity in almost every sector,” contends Alun Rafique, co-founder of Market Dojo, an e-sourcing software provider. “A big retailer has been using our software to run auctions covering a wide variety of commodities. Retailers are already one of the most advanced and prolific users of auctions so there will be a limit to how many auctions they can run in conjunction with other negotiation methods.”

Others also say that retailers have long been frequent users of e-auctions, albeit for certain types of products. However, there is no data on the frequency of use, or who is using them.

Daniel Ball is business development director at e-procurement specialist Wax Digital. He doesn’t feel there has been an uprising in e-auctions but retailers have used the tool for many years now and “their activity is higher than other organisations of equivalent size in other sectors”.

But that isn’t necessarily a bad thing, he adds. “There are a lot of accusations levied against these auctions – that they are just about price and are damaging to [supply chain] relationships – but that doesn’t stand up in our experience; it’s just one element of a much wider engagement.”

Supermarket buyers rely on key suppliers to help them in periods of short supply or high demand – and provide discounts when supply is high. As John Abkes, vice president ofiTradeNetwork explains, if a buyer gave business away a few weeks ago based on price, loyal suppliers may be less likely to go that extra mile in the future. “The buyer might save a few pence, but he might not be confident of the quality of the product or the service levels, which in the long run could cost more money.”

Running an e-auction badly can also be “disastrous”, according to Rafique. “If an auction has less well-defined specifications the suppliers will all be bidding to different criteria on an uneven playing field and the buyer might award the contract to a supplier who has not understood the desired service levels, resulting in suppliers possibly reneging on thecontract. This ends up as bad press for the tool when the process is in fact to blame.”

There is no doubt e-auctions have got bad press. However, there is evidence that they can help matchmake suppliers and buyers. Pete James, from the University of the West ofEngland, has been leading the i-ADAPT project – an Independent Assessment into theDevelopment of Auctions as a Purchasing Tool. This year, James published the results of a survey among buyers from a range of sectors, including retail and food manufacturing.

Some of the results were “astounding”, not only refuting the claim that buyers’ auctions are adversarial but that they actually show improvements in the buyer-supplier relationships.Nine out of 10 of the buyers quizzed said developing supplier relationships was a major objective of the auctions. Just 33 per cent said they chose price as a primary factor in supplier selection. Supplier performance was also enhanced following an auction, according to James.

“E-auctions are shifting the way you manage the negotiation process,” says Wax Digital’s Ball. “There is a lot of prep work required [for suppliers], which creates a level playing field for all of them to work to. They also ensure retailers [involve a handful] of suppliers they believe in. Pitching them against one another on price alone will just expose [retailers] to risk.”

And it’s not only supply risk that retailers could expose themselves to. “These are economically challenging times and cost is a big factor for consumers, but they don’t want to compromise on availability or quality,” adds Ashley Clarkson, associate director and fresh produce specialist in Grant Thornton’s food and beverage team. “Retailers are looking for quality, sustainability of supply, NPD, service levels and price management from their suppliers.”

As a result, Clarkson believes e-auctions will remain on the fringes for buyers of fresh produce. The discounters may well use them as a price-led spot-buying procurementmechanism – and with more of them supplying food, 99p Stores for example, this could see a few more auctions taking place.

However, the main grocery retailers don’t look like they will ramp up their activities any time soon. Morrisons and Tesco wouldn’t comment on their policies, but Marks & Spencer and Asda “do not use e-auctions”. Sainsbury’s says e-auctions are “an option open to our buyers when negotiating our supply terms but we tend to have long-term relationships with a lot of our growers and suppliers, meaning that they are rarely used in fresh produce”. 

Monday, 17 September 2012

The British culture seen by a Frenchy

editors note:  this is the second blog entry from our excellent intern Hadrien Geffroy.  Sadly Hadrien's internship has reaached it's completion and we have to say au revoir, but Hadrien, you are welcome back  any time.

Advice: this article could contain French humour which some English people could possibly not understand. I apologise for it, and I ask you not to take it wrong or feel offense. Thanks you for your understanding.

I don't know if it's because we are neighbours or if it's a direct consequence of globalization, but the British culture isn't so different from the French culture. I mean we are both Occidentalized countries, lead by a democratic government and severely influenced by the American culture. But a few things caught my attention. The first things that shocked me when I arrived in Bristol were the streets and houses, all the British houses look the same and there are no garages to park your cars!  Where are your architects? Do you have architects? Do you know what an architect is? Do you want some of ours? Fortunately Banksy is here to beautify your walls!

The second example of great interest to me personally is FOOD. Being French, food is for me a big part of the culture and even if I come from France and the food I eat there is the best in the world, I have to admit there are a few good things in your kitchens. Obviously I'm not talking about this stupid chilli (I'll get back on it later). By good things I mean crumpets, Shepherd's Pie, crumbles, bacon...  And even if British food isn't very sophisticated, the meals I ate all along my stay were quite good. Breakfast is on the top of the list of my favourite British food. I tried typical brekky twice and each time it was a really culinary orgasm. I was also fond of Fish & Chips until some made me ill. I love curry as long as there is not too much chilli. You may probably think I make a fixation on chilli but you have to know that for my first lunch with Nick & Alun they put so much chilli on my sandwich that I thought my tongue would fall off. I'd like to talk about beer but I don't want to shower you with too many praises.

In the UK, and more especially in Bristol, the culture is more visible on the streets than on the plates. The street looks like a perpetual carnival, there are so many styles of people: hippies, Goths, hipsters, coloured haired girls... and what about girls... I don't want to introduce an endless debate about which of British or French are the most attractive but I heard someone who said that French girls have pretty nice faces and bodies but they are too much introvert whereas British one's looks sometime "not attractive" but they are sexier... I let you give your point on it on the comments ;)

There is another reason I will never forget this summer: Olympics. One of the questions people asked me the most while my stay in UK was "what do you think about the opening ceremony?" And here is another point in which I have to admit you are very good. I watched the Opening on the big screen in Bristol's town centre and the atmosphere was awesome. 

Being in the UK while the Olympics were on gave me the opportunity to spend a day in London, I couldn’t watch any event but I enjoyed the infatuation of the Olympics. Of course, as a Frenchman, it was very difficult to endure all these gold medals for Team GB or to see how many British people scorned handball. Everybody told me it was a sport for girls...Oh sorry, it's true, you got the most athletic sports in the world: Darts, Snooker and Cricket...

If there is a point on which France should copy the UK, it's on the place of sport in society. When you see the place of sport in the daily life you quickly understand how the British athletes managed to reach 26 gold medals at the Olympics. In France sport is most of the time just seen as a way to stay healthy but in the UK it's much more than that; so one point for you.

Now you read my article, you're obviously allowed to do the same for French culture!

About: Market Dojo provides accessible eSourcing software.   Find out more at www.marketdojo.com

Thursday, 13 September 2012

Once upon a time, a Frenchman went to Bristol

editor's note:  this is the first of two blog entries by our intern extraordinnaire, Hadrien Geffroy from École Atlantique de Commerce in France.  We were fortunate to have Hadrien join us for 6 weeks this summer and to take us to markets we have never been before.

The 9th of July, on a wet summer’s day, I set my foot on British soil for the first time of my life. Obviously I would have preferred to spend my holidays in my native country, the beautiful and sunny France. But a special mission was waiting for me, here in Bristol, and more precisely two businessmen: Nick & Alun (or Alun & Nick, no jealousy there).

Indeed, as part of my studies, I had to complete a 6 week long internship abroad over the summer. “Why Market Dojo?” You might ask? In fact I had heard about Market Dojo by chance. Fond of the web and new technology I was looking for a trend company as a start-up which related to my business studies. It was only after a few researches that I found Market Dojo. When I applied for my internship, I didn't imagine how much I was lucky to work for this company. 

Today I'm working for Market Dojo as intern and thus for 6 weeks. Because my work is very boring and uninteresting (humour), I have time enough to talk to you about the fantastic professional and life experience I'm currently living in Bristol.

Monday the 9th of July 2012 at 09:00, I knocked at the door and two young (it's all relative) smiling guys opened the door. I quickly understood they were very cool and relaxed, but also very professional so we didn't lose time before we set to work, just the time to take a cup of tea (the first of many). But Market Dojo is a kind of modern company, most of the work is home-working and the atmosphere is relaxed, which makes my working conditions very comfortable.
Now let me talk to you about the advantages of working in a little company. Having the opportunity to work for Market Dojo allowed me to see this. Indeed, I wish to every student to work for a little company to live both a professional and a life experience. In little companies the border between working life and private life is very thin; which makes work less boring and gives me ample time to learn about the British culture.

Hadrien receiving his internship certificate
Concerning the work, I quickly realized my responsibilities would outnumber what I was expecting. In my case, my main goal is to make Market Dojo's website and software accessible for any French native who wants to use Market Dojo's service; which means translating approximately 15,000 words (so easy!!). But I also have to think about Marketing for French market, software testing, assist a conference, and make cups of tea (wringing the tea bag is much more technical than it seems). Being an intern at Market Dojo also involves eating bacon sandwiches, playing tennis, going to the cinema, watching the London Olympic games, looking at videos on Youtube (http://www.youtube.com/watch?v=YCiY1y3uJ3o), so many things that make you forget you are here for work!!

So many thanks to Alun, Nic and Nick for these 6 weeks!

About: Market Dojo provides accessible eSourcing software.   Find out more at www.marketdojo.com