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Bid automation

Getting your vendor proposals back in line

By Lisa Wichmann

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any purchasers enjoy watching bids come in. It means their RFQ was reasonable, well-written, and the project is going ahead as planned. But there can also be a sense of dread. Buyers may anticipate headaches resulting from incomplete bids, missing information and erroneous data.

Even when the bids look good, purchasers brace themselves for hours of data entry into spreadsheets, complicated comparisons, and the frustration of trying to weigh non-financial factors. But with bid automation, the process is far more accurate and efficient. That's what organizations such as Medbuy and Atlas Hydraulics are discovering. Their suppliers are starting to submit bids electronically, on pre-populated forms that don't permit missing data or undesired formats. Medbuy, for instance, is working with Ariba Inc. to access software for bid control, contract compliance and visibility. Based in London, Ont., Medbuy is a national group purchasing organization for healthcare providers. Medbuy was accustomed to receiving bids electronically, but they consisted of a spreadsheet filled out by the supplier and sent back in. "The problem with that is there were so many variables in the spreadsheet," says Rick Cochrane, CEO of Medbuy. "We'd run into situations where we would ask for a bid in millilitres and somebody would respond in litres. Or it's maybe being completed by a US division of a Canadian subsidiary and they might fill it out in ounces." The new system involves an online portal where suppliers log in and fill out their bids. It's already improved bid integrity. "With the new format, they're not able to adjust units of measure, so it provides a much more rigorous response format," Cochrane says. "Once you've got all of those responses in, you can use the tool to automatically do your scoring. So on your non-financial components, you try to make it as much yes/no answers [as possible] so you can score a substantial portion of the RFP without actually having to go through and do the calculations." The old way of doing things involved

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several legacy systems that didn't really allow for integration between bidding, evaluation and contract management. Once all the bids came in on spreadsheets, Medbuy had to manually cut and paste all the suppliers' information onto a master spreadsheet. The process was prone to human error. "We just ran into a situation the other day where we were getting ready to award and I looked at the numbers and said this doesn't make any logical sense...I've looked at these two suppliers' prices...and I know company B is consistently always more expensive; and yet the way the scoring is showing up, they would have been cheaper. So we dug down and what happened was when they cut and pasted the two suppliers' numbers, they reversed them." With the new system, there's no way those errors can occur. Another benefit is the speed of analysis afforded by the software. Medbuy did an RFP a few months ago involving 8,000 SKUs sent out to 121 suppliers. Bids were sent in by 67 vendors. The challenge was the RFP permitted various costing options, inviting hundreds of possible scenarios. "It would have taken two people about three man weeks each to [evaluate] that manually. We were able to run it through the [Ariba analysis] system, basically running it almost 24 hours a day, and were able to do it in two days," Cochrane says. Once the analysis software determines the winning bid, the contract is automatically pre-populated with the data. So there's no chance of the wrong price showing up in the contract. "We [also] manage our addendums through that. So the supplier, instead of sending us an e-mail saying product 123 has been discontinued and here's a new product and price, we will actually do that through the Ariba system, with all the business rules built in." Deletions of discontinued products would call for approval from a specific

(Reprinted with permission from Purchasingb2b)

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staff member at Medbuy. Price changes would require approval from another staff, and so on. "When you accept an amendment, it automatically updates all your pricing inside contract manager," he says. "So contract manager becomes your real source of truth."

payable department gather data required for financial compliance. "So in addition to the cost savings of eliminating paper invoices and manual processing, and reducing cycle times, it also gives you access to much more controllable, predictable processes." Companies using paper invoices

With the old way I would get a quote back through fax and I would have to copy it and distribute it to the estimator and then file it. I have two filing cabinets here in my office from the old way. It's so easy for me to issue an RFQ now.

Looking ahead, Medbuy is working with Ariba to develop a rebate component, so it can determine if it's receiving all the discounts it's entitled to.

Supplier cooperation

Of course, the success of Medbuy's endeavors depend in large part on the willingness of suppliers to change the way they submit bids. The Ariba system requires some training, but Cochrane expects once the organization is through one cycle on the new system, everything should run smoothly. The whole issue of getting vendors to cooperate--often called supplier enablement--is a huge area of e-procurement. For years, buyers have been pushing suppliers to post catalogs online, file bids electronically, and more recently, to invoice electronically. "Today, it's one of the fastest growing areas in spend management, certainly in the US," says Chris Eyerman, director of network and EIPP solutions with Sunnyvale, Calif.-based Ariba Inc. "Typically when you introduce e-invoicing you can reduce the cycle time to your approved invoices and approved payments." Doing so, some companies have been able to cut their payment times from 60 days to several days, allowing them to ask suppliers for discounts. It also helps the finance and accounts

often have to bring in post-audit recovery firms to pore through invoices, compare them to the contracts, and try to identify erroneous payments. "There's a lot of leakage of what may be contracted and what actually gets paid out to suppliers," he says. With electronic invoicing in place, data can be fed back to procurement systems for contract compliance and negotiation purposes. Though some organizations are well on their way with electronic invoicing, others are still in the earlier stages of e-procurement, such as switching to electronic purchase orders and getting suppliers away from paper bids. Atlas Hydraulics Inc., for instance, has been working with QStrat Inc. (Mississauga, Ont.) for about a year now, to develop an electronic bid system. The Brantford-based provider of hose and tube products is already seeing great results. "It's been fabulous to work with," says Richard Kouwen, purchasing manager with Atlas. "It's such a big improvement from the way we were doing things. We [used to have] an Excel macro...but it was very labour intensive for me to create RFQs." Kouwen, when drafting RFQs, must first consult with his team of engineers and estimators. "With the old way I would get a quote back through fax

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and I would have to copy it and distribute it to the estimator and then file it. I have two filing cabinets here in my office from the old way. It's so easy for me to issue an RFQ now." The new system is all electronic. The estimators have access to the software and can enter in part requirements, drawings and other documents. Then, Kouwen gets a pop-up message on his computer letting him know the estimators have created a new RFQ. He looks it over, selects the vendors, and they're notified via e-mail. The message has all the relevant documents attached, and the RFQ itself is a PDF file. "It's an editable PDF so it allows them to enter in the pricing along with some mandatory fields that we've put in there like freight-on-board points and currency," Kouwen says. "On the bottom of the RFQ is a button that says `click here to submit' and as soon as they're done they click on it and it e-mails the quote to our server." From there, Kouwen gets an e-mail notifying him a bid has come in. When he goes in to look at it, the system displays all the bids side-by-side for easy comparison. The server sends a confirmation to the supplier with the quote they submitted. "But that's not editable anymore so they can't make changes to that," he explains. "So you can always say, `this is the price you submitted because your confirmation shows that you had that price listed there." If the supplier realizes he made an error,

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he can resubmit a bid and the server will discard the old one and keep the newest version. In the past, Kouwen had to call suppliers to get more information about their bids, if data was missing. But the PDF form won't submit if the vendor has left a mandatory field blank. The estimators used to call Kouwen to ask if any bids had come in yet. Now they simply go into the QStrat system to check for themselves. Plus, all previous RFQs and contracts are kept in a repository for easy access.

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supply the part in titanium and asks if copper would do, the question and answer are posted for all to see. The system also manages the process, such as sending out reminders to suppliers to bid. It frees up time for the buyer, Bekto explains. Though there are plenty of webbased portal solutions out there, Bekto isn't a fan. In the automotive sector, for instance, where QStrat got its start, a manufacturer supplying to companies like Magna would have to register for 20 different web portals, learn how

The system is basically designed to make it as painless as possible for the suppliers to participate...They type right into the form. PDF has gone from being read only and print, to an electronic form.

to navigate through all of them, and remember 20 different passwords and user IDs. "It becomes frustrating to the supplier," he explains, adding a PDF form involves none of those hassles. It also facilitates teamwork. "Say for example I'm a supplier and I get an RFQ and I need somebody from engineering to comment on it. Imagine if I had to tell them `go to this portal, log in, find this RFQ and help me build a price'. It's not going to happen." With a PDF, the supplier simply emails it to the engineer, who writes comments and adds pricing data right on the form itself. Equally important, a PDF form is palatable to overseas suppliers. Suppliers in China--considering how busy they are--won't likely agree to register to multiple web portals to bid. But a PDF is manageable. The system also translates the form into the desired language--Chinese for instance--to further encourage bids from suppliers in low cost countries. Whatever type of system the purchaser may choose, the bottom line is the same--cleaning up the bids, saving time, and spending hours, instead of weeks, determining the ultimate winner. b2b Contact the editor at [email protected] pb2b.rogers.com

(Reprinted with permission from Purchasingb2b)

For QStrat, the best feature is the PDF format. It doesn't require suppliers to be trained. All they need is e-mail and Acrobat Reader. "The system is basically designed to make it as painless as possible for the suppliers to participate," says John Bekto, business development manager with QStrat. "They type right into the form. PDF has gone from being read only and print, to an electronic form."

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Managing the process

The PDF highlights in yellow the most important criteria such as price and shipping date. It won't accept incomplete forms. It also navigates around the traditional hitches of bidding. "It does all the mathematics to convert all the currencies to a baseline currency, weight and measures," Bekto explains. "So as the supplier is filling it out, it's totalling it, converting it, doing everything you would want it to do." Once the supplier completes the form, it's encrypted and sent back to the buyer. The system sends a copy of the bid back to the supplier for his records. Once all the bids are in, the system easily determines the winner. Questions that come up during the bidding are shared with other contenders, to avoid repeat calls to the buyer. For instance, if a bidder says he can't

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