Introduction to eNegotiation Services2009

Introduction to eNegotiation Services2009

Michael EreliVP, Supply Chain SolutionsSupply Chain Connect, LLC832-497-5125mereli@SupplyChainConnect.com

Michael EreliVP, Supply Chain SolutionsSupply Chain Connect, LLC832-497-5125mereli@SupplyChainConnect.com

Focused on Innovating and Improving the Buying Process Worldwide• Through a unique combination of

– Market information– Industry expertise– E-commerce solutions– Active network of trading partners

• With two primary business lines:– Collaboration Hubs– Negotiation Solutions

• Backed by strong global presence: – Privately held, founded in 1995– Employees in US, Europe– Serving over 100 companies worldwide, in chemicals,

cable & wire, and other manufacturing industries

Supply Chain Solutions Overview

• Collaboration Hubs– Hosted transaction processing and supporting

supply chain applications:• Order management• Inventory visibility• VMI

• eNegotiation Solutions– Managed Events– Professional services– Trading Center

eProcurment Scope of Services

“Sweet” Spot

Consider Supply Factors

Consider Supply Factors

Identify / Qualify

Suppliers

Identify / Qualify

Suppliers

Determine Sourcing Strategy

Determine Sourcing Strategy

Execute, Assess and

Award

Execute, Assess and

AwardDetermine

Supply Needs

Determine Supply Needs

Monitor Supplier

Performance

Monitor Supplier

Performance

• Gather bids and terms

• Clarify responses• Optimize and

determine awards

• Negotiate contracts with suppliers

• Match negotiating technique with environment:

–Dynamic bidding events

–RFQ’s / RFI’s–Distributor

events

• Identify historical suppliers

• Assess performance history

• Assess 3rd party supplier databases (other alternatives)

• Qualify new suppliers as necessary

• Volume of material

• Total spend• Concentration of

suppliers• Delivery

restrictions

• Monitor manufacturing operations

• Consider production forecasts

• Monitor supplier availability

• Gather performance data

• Assess performance vs. metrics

• Rate and rank suppliers

Handle Logistics/ Payment

Handle Logistics/ Payment

• Schedule deliveries

• Coordinate all inbound logistics

• Approve delivery quantities and qualities

• Process all purchase-to-pay documents

• Release payment

Supply Chain Connect can provide all the procurement services for a given category of products. Typically we support procurement personnel by leveraging eNegotiation tools effectively. We bring a unique mix of product knowledge, market intelligence and online auction event design experience to provide our clients with a “market edge”.

We Support a Variety of eNegotiation Tools, and Know When to Use Which One

Online eBid – What and When?• Any product, service that is paper biddable with value of more

than $100,000• Item to be auctioned must be clearly and completely described• Buyer has the ability to choose between bidders• Switching cost is substantially below expected benefits• Minimum of two interested bidders• Use in any market condition when you must negotiate

• Event-based transaction model for either simple or very complex electronic reverse (buy) auctions

• Subscription model for sourcing/negotiation tools: eRFx and self-service auctions

• Supplier-funded model for data sharing and collaboration tools

We offer full range of on-line bids and supporting services

eNegotiation Tools

• Self-service auction platform – web-based application which supports RFQs and dynamic auctions in a number of pre-defined formats. Also accessible to existing supplier database.

• Full-service auction platform – web-based application, fully customizeable to support any type of bid format, used by Supply Chain Connect staff.

Subscription/Pricing Models

• Time and materials, based on level of effort

• Results-based

• Hybrid

• Single event, or longer-term subscriptions

We have successfully used eNegotiations for many categories of raw materials and indirect materials and services

Raw Materials:

• Hundreds of electronic bids annually

• Products include acids, bases, solvents, intermediates, pigments, anti-oxidants, stabilizers, process aids, functional additives, specialty organics, resins, fillers and inorganics

• Principal producers and distributors participate

• Prices bid- fixed, indexed, and algorithms

Indirect Materials and Services:

Packaging• Drums, Pails, Semi-bulk

containers• Metal, Plastic, Fiber• Corrugated Packaging• Pallets, Wrap

Services• Security• Temp Labor• Janitorial• Printing• Hotel Rooms• Auto Leases

Energy• Electricity• Natural Gas• Coal

Industrial Equipment• Reactors• Injection Molders• Autoclaves• Tanks

Safety Supplies• Shoes• Glasses• Gloves• Etc

Project Management• Construction• Demolition

Representative Engagement: Bulk Solvents Buy

Step / Week 1 2 3 4 5 6 7 8

Analyze spend / determine purchasing strategy

Refine and distribute event statement

Gather qualifying bids

Determine handicapping

Run dynamic event

Analyze results and award

Situation: Client was buying ~$6 million of bulk solvents and ethanols from combination of distributors and manufacturers. Given recent price increases, client wanted to see if we could analyze spend and improve their negotiating position.

Solution: We analyzed spend and identified ability to aggregate spend across multiple different products. We also identified where manufacturers could effectively compete with distributors. We conducted 2 online bidding events, one for 19 mmlbs of 6 different solvents, and one for 6.5 mmlbs of ethanols (3 different industrial grades). Both events were for a 2-year supply, with quarterly price protection.

Results: Contacted 20 suppliers, 15 agreed to participated. Active bidding on all lots, lowest bidders for each product was the incumbent, but yielded $620,000 in savings (10%).

On-line bids produce results Cost Reduction/Avoidance typically 5-15% depending on product or

service Market dynamics determine final price Level playing field for all suppliers- Incumbent supremacy is

challenged by the market Non-price soft factors are assessed quantitatively

Indirect materials example (MRO items)

Buyer requested quotes on approximately $1.2 million of MRO goods.

128 items to be consumed over 18 months as part of a construction contract

Initial bids received from 6 distributors, only 2 were able to meet all requirements

During dynamic bid, both suppliers lowered their initial bids by 25%

Resulting savings were over $250,000

Associated Services – with or without an “Event”• Outsourced negotiations, transaction facilitation and

execution

• Spend analysis

• Price benchmarking

• New supplier identification

• Tool evaluation [3rd party tools]

• Opportunity analysis and recommendation

• Fulfillment & award optimization analysis

• Supplier training & coaching

Representative Customer Activity: Buy Auctions for a Specialty Chemical Producer – 2007Item Type Auction Spend Savings

Hotels Indirect Basic $176k $88k

Janitorial Indirect Basic $2.1MM 33%

Steel drums Indirect Full $2.6MM 3.5%

Car leasing Indirect Basic $2.4MM Strong savings

IBC containers Indirect Basic 857K EU Fractional savings

Steel pails Indirect Self $150k 5%

Polyester polyols Direct Self >$1MM NA

Titanium dioxide Direct Basic $6.7MM 9%

Organic pigments Direct Full $3.1MM 33%

Antioxidants Direct Basic $2.4MM 3%

Flow modifiers Direct Self $100k NA

Distributor chemicals Direct Full 18MM 14%

Select eNegotiation Customer List

• HB Fuller• Dentsply• DuPont• Dow• Clariant• Myers Industries• Basell• BP• Clorox• Abbot Labs

• Shell• Rubbermaid• Rohm & Haas• Reliant Energy• Solvay• Tyco Plastics• GE Plastics• Honeywell• Valero• Kodak