Wednesday, 12 February 2014

Domestic eSourcing - a follow-up to Spend Matters

This article is a follow-up piece by Nick Drewe, co-founder of Market Dojo, who used the Market Dojo eSourcing tool to let a contract with local builders for his own home extension.  The series of articles (found here, here and here), written in late 2013, was picked up by Peter Smith at Spend Matters who raised some interesting observations.

Several months have passed since I conducted my domestic eSourcing event involving some 96 Bristol-based builders.  The outcome of the event was implemented savings to the tune of 33% versus my best pre-tender offer.  Furthermore, due to the preparation that is typically required to enable an eSourcing event to be run, the implementation was simply a case of ‘sign here please’.  The contract has since been signed with the successful builder and work is due to start imminently.  

The reason I bring this up is that I stumbled upon the coverage of Part 2 of this series by Peter Smith at the excellent Spend Matters UK blog.  You can find the original article here.  Peter raised a number of interesting points, which I attempted to answer via the ‘Comments’ facility on the blog.  However, I would like to re-address some of those points here, as they deserve further attention in my view.

First of all Peter asks:

“Can auctions be used for pretty much anything?”

The first thing that popped into my mind was that I wasn’t necessarily running an eAuction.  At this point, I was conducting what would be more formally recognised as an RFP, using online scored questionnaires and a bespoke pricing structure.  Ultimately, the RFP was all that was needed, as it became clear that any further significant cost savings would arise from changing the specification and not from negotiating the rates.

As I mentioned at the time, I did think about running a weighted tender, taking into account the supplier questionnaire responses, my opinion of their site visits and testimonials from their previous clients.  I decided against this because although a weighted tender helps to identify the overall top performers, sometimes you just have to go with ‘gut feel’ - totally illegal in EU Procurement rules, I know!  I simply wouldn’t know what price to quality ratio to set, nor how much weighting to assign to aspects like the client testimonials until I actually heard from the clients.  If the clients were all impassive, I would largely disregard this criterion.  However, if the clients were passionately pro or against a particular supplier, it would weigh heavily on my mind, perhaps far more so than the price itself.  In a word, a weighted tender would have been too ‘rigid’, whereas sometimes there are merits in having a fluid decision-making process.

Peter continued:

“And perhaps most striking, is the thought that there might be domestic applications for some B2B eSourcing tools.  Might a consumer be able to use sourcing tools when buying a new car? a holiday?”

Now this I know the answer to - yes, absolutely!  Aside from my case in point, which is the first example I know of that incorporates a true business-to-business eSourcing tool for a domestic purpose, there are a host of other ‘eSourcing’ tools that can be used by consumers.  There were numerous eSourcing tools for the building trade, such as RatedPeople.com or MyBuilder.com.  Buying a new car via reverse auction can already be done on AutoeBid.com.  Another example I used was when I recently transported a sofa from my flat in Bristol to my parents house in Sussex.  I sourced the delivery using AnyVan.com.  In the end my final price was entirely free by piggy-backing off an existing delivery, although my parents gave them a fiver for carrying the sofa upstairs!  

Electronic sourcing is about finding online the right supplier at the right price for the right goods or services that you desire.  A good eSourcing tool will make this task easier, quicker and more effective for you, and so the fact that there are so many eSourcing tools for consumers is testament to those benefits.  The question is, as the internet becomes more ingrained in our daily lives, which of B2B or B2C will adopt eSourcing more comprehensively?  At this rate, I’m inclined towards B2C.

Anyhow, before we deviate too far from the main topic, let’s get back to more from Peter:

“One barrier [to eSourcing] is that you need to have some real competition to get the benefit of tools and indeed of the processes themselves.  So it is less applicable if you definitely know which hotel in Obertauern you want to visit, as in our case!”

The reliance upon competition is certainly true.  However, the trick is to create competition.  If you want an iPad, you know Apple is the only manufacturer and so you might think you have zero competition.  However, there are many distributors, retailers, stockists etc. that you can involve.  They each have regional, time-bound or even personal targets to meet.  They have their own margins they can play with.  I’ve run an eAuction in the past where an Apple stockist outbid Apple themselves!  

In the hotel example, whilst Peter knew which hotel he wanted, he could have created the competition by involving other hotels that he may equally have been attracted to if the price was right (and there should always be such a price, e.g. if another 5 star hotel offered rooms for £10 a night perhaps?).  So in the eSourcing context, invite hotels that you could be incentivised to book with and see what they can all offer.  Perhaps you’ll find a reason to book with another, or perhaps you’ll head back to the original choice but with a better deal.  Other consumer eSourcing tools like LateRooms.com or Trip Advisor might also be able to find you that deal despite the initial lack of competition.

A final point raised by Peter was:

“Another issue of the consumer is that we often don’t have significant repeat business to offer, unlike most corporate situations. So if Nick accepts a low bid, will the builder really care about doing a great job, knowing that he probably isn’t going to buy another project for some time, if ever?”

Now this simply comes down to finding the right supplier, someone who will respect your value of business.  It has very little to do with the eSourcing process itself.  If I asked Balfour Beatty to sort out my house extension, I’d be laughed at and quite rightly!   As the largest construction company in the UK, what would they care about my project?   However, if I approached a company that has an excellent reputation but is still in their early days and wants to use this opportunity as a stepping stone for greater things, they will be devoted to the project so they can use it as a flagship case study for their future proposals.   

Hence this comes back to using an element of ‘gut feel’ when awarding the contract, as you get a sense of this motivation only when you meet the suppliers.  As it happens, the builder I signed the contract with was not the most competitive and yet I signed with them for exactly those aforementioned reasons.

Anyhow, that wraps up some of my thoughts when I re-read the commentary that Peter kindly provided on the original piece.  Since then we’ve negotiated a new kitchen and bathroom (aggregated together to leverage the extra spend) and boy did we wish we had reverse auctioned that to save time!  We were actually glued to the phone in the car trying to finalise which supplier we were supposed to drive to whilst our three shortlisted suppliers went back-and-forth undercutting each other!  It was worth it in the end, as we did implement a 50% saving from the initial discounted offer, but a part of me wonders what would have happened in an eAuction.  I guess we’ll never know!

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