In the home of country music, procurement executives from the US and beyond were working nine to five discussing the latest topics in procurement technology and how to use data and sourcing solutions to unlock value in their supply chains and avoid falling into the ring of fire.
Procurement Leaders travelled to SciQuest’s 15th Next Level conference in the monumental Gaylord Opryland hotel (complete with its own indoor rainforest and river boat service) in Nashville, Tennessee, taking home some key learnings from the presentations at the event.
Reverse auction tools can put procurement back in the driving seat
Getting both the right supplier for the job on board and getting a supplier at an attractive price is an ongoing paradox in the world of procurement. Yet, the solution may lie in turning the traditional auction on its head and opting instead for reverse auctions. This was a hot topic on day one at Next Level, as buyers grappled to take control of their supply chains.
Reverse auctions, in which multiple suppliers bid on the product that the buyer wishes to buy and that the supplier wishes to win a contract for, put procurement firmly back in the driving seat of the bidding process.
Procurement sets the rules of bidding, including the maximum price they are willing to pay, the decrement between one bid and the next, and the registration process that the supplier must comply with. What follows is a game of cat and mouse between registered suppliers, as they undercut each other to offer the most competitive and attractive price to the buyer, and as a result secure the deal. Not only driving down the price that procurement has to pay for the supply of goods, a reverse auction has all the benefits of speed, competition visibility, and low risk.
To play a fair game, delegates were advised to run test auctions, training suppliers to be more familiar with sourcing events and using a bidding tool that automatically rejects bids that do not comply with the rules set out at the start.
And understanding the psychology of your suppliers is key to sourcing feedback
In any sourcing event, in any business, communicating with suppliers is a must, whether this is through an informal process of supplier negotiations or a structured dialogue in the bidding process. But predicting the behaviour of suppliers is no mean feat and so this has become a major element of SciQuest’s Advanced Sourcing Optimizer tool (ASO).
Understanding the inner psychology of suppliers is essential when determining the style and level of feedback to give during a sourcing event, when cost-savings can be significantly affected. After all, human behaviours run through every business decision and procurement should not underestimate this. Knowing the mindset of your suppliers is key to getting the best from them and knowing how to give them feedback that they will best respond to.
Much can be learnt from lessons in behavioural psychology, with the audience being reminded of the fact that the value of something lost is seen as much greater than the same value gained. Suppliers are adverse to losing money and bids, and finding the supplier’s sweet spot is key to better engagement and upping competition.
It may sound simple, but a colour-coded feedback system has proved valuable to many customers, with red meaning the supplier’s bid is highly non-competitive, yellow meaning it is non-competitive and green meaning it is competitive. The trick here is to avoid colour coding the supplier red at all costs. Human nature tells us that a supplier who is given feedback that they are significantly non-competitive will give up altogether, damaging relationships and leaving the sourcing process faced with limited competition.
Knowing how granular to make supplier feedback was a question many delegates hung on and talks on day two weighed up the pros and cons. Granular feedback means that suppliers know how competitive they are and can adjust their bids accordingly, however, having greater transparency into their position in a bidding process means they are also less likely to discount their bids.
But regardless of the means, giving feedback to suppliers is an important feature for procurement and the function is demanding more feedback options built into sourcing tools and solutions to help better predict supplier behaviour.
Cleaning up supplier management
Supplier management is an increasingly complex area of procurement, as new government requirements and regulations continue to add another dimension and businesses are ever-expanding their volume of suppliers, in turn struggling to stay up to date with the performance, risk and other factors impacting each supplier in their supply chain.
Moving to an automated and centralised solution can go a long way to tackling this enormous challenge. Procurement can configure data in a more user-friendly, logical order, and this also avoids the duplication of supplier entries. Further to this, supplier on-boarding, when done manually, can take up to three weeks, while using an effective supplier management tool can reduce this to just one day.
Getting a better control of vendor data helps to mitigate a whole host of supply chain risks, boosting supplier diversity, getting a grip on spend management and improving risk management.
The diversity of platforms available in the procurement marketplace now extends far and wide, and should be used to clean up supplier data and document all necessary information within one platform that can be updated in real time. One final warning to the room: procurement must remember supplier management does not end once the contract is signed but has to be carefully managed and updated throughout the entire relationship.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.