When it comes to procurement, we can think of a spectrum with three sections.
For the smallest items by dollar value, policy permits sole-source acquisition. The item is so small that competing it among multiple suppliers isn’t worth the effort. The cost in time and distraction outweighs whatever one might save. So, you can buy a couple of hundred pens by walking into Staples. There is usually an upper limit, say of $5,000 to $10,000.
After this break point, we move into the catalog part of the spectrum. In Canada, they might refer to this as a “standing arrangement.” US governments talk about “schedules.”
Imagine that you are charged with purchasing $50,000 worth of servers. You visit the internal website your company operates for employee use and you navigate to a section called “procurement.” There, you will be able to choose from a set of categories, including technology. You see the logo for a well-known vendor of servers and you click on it.
This appears to take you outside of your corporate website to the vendor’s site where you can see a catalog of what appears to be everything they sell. You search for the kind of servers you require and you see a list price.
Actually, what you are visiting is a “punchout” catalog designed just for people from within your organization with prices that reflect a pre-negotiated discount to the supplier’s publicly listed prices.
Were you to visit ServerCo’s public catalog, you might see more items from which to choose, but the prices would be higher. Or they should be higher.
In the punchout catalog, the buyer’s procurement department has won percentage discounts to list pricing in exchange for some sort of promise of volume. ServerCo is willing to do this because of the buyer’s size and historical spending patterns.
These discounts are typically static, reflected in a contract of one- or two-year’s duration. If it is for technology, one might anticipate an adjustment to reflect the natural deflation of prices for technology on a like-for-like basis.
A dynamic price quote would be one that reflected supply-and-demand conditions at the time.
For example, it may be the case that the supplier has a surplus of a particular item. This condition may make the supplier much more willing to discount the list price aggressively at that moment in time.
By contrast, with a punchout arrangement in place, the supplier may be unwilling or unable to make such an adjustment even if it were mutually acceptable given the contractual constraint.
Finally, the third section of the procurement spectrum refers to purchases so large that procurement policy demands the execution of a reverse auction to surface competition on price and solution. We have discussed previously how these reverse auctions can lead to poor outcomes both in the quantity and the quality of responses vendors end up submitting.
The best way to improve acquisition performance is to make it easier for suppliers to give buyers what they want.
Why don’t buyers run a reverse auction when it comes to the catalog part of the spectrum? It comes down to transactions costs and savings. Traditionally, it has been easier to operate a catalog.
However, if the buyer can execute a hasty RFQ for purchases in the catalog bucket, then there should be no reason for the punchout catalog to exist.
The best way to do this, particularly for commonly purchased items, is to use a simplified template.
With templates, buyers can execute a reverse auction in days.
Suppliers like it because they may be able to recycle their responses very easily, updating only a handful of items such as price or delivery schedules.
Templates can be reused across buying firms to drive competition and simplify the sales cycle.
Ideally, one would combine this with tools to expose a larger variety of suppliers and to onboard them quickly through the risk vetting process.
EdgeworthBox helps buyers make this happen. It is simple to use. You can store templates from your internal library or select from a commonly accessible set of templates for a given category.
We also have tools that clear centrally vendor onboarding data to expedite risk assessment so that buyers can solicit suppliers with which they do not have an existing relationship.
We’d love to talk to you. Give us a shout.