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Auctions in the Cloud
April Miller, Sr. Consultant, BPC, Ariba
Joanna Smith, The Estée Lauder Companies
© 2013 Ariba, Inc. All rights reserved.
#AribaLIVE
Agenda
• Welcome
• Customer Story: The Estée Lauder Companies
• Paint Auction Example: Mobile Mini
• Interactive Activity: Let’s Lot
• Interactive Activity: Play by the Rules
• Closing Remarks and Takeaways
© 2013 Ariba, Inc. All rights reserved.2
#AribaLIVE
Welcome
Joanna M. Smith
Global Indirect Procurement, Estée Lauder Companies
Strategic sourcing manager with eight years of professional experience. Currently with
The Estée Lauder Companies, Joanna sources goods and services for various internal
Brands and corporate functions. Represents GIP on cross-functional teams, collects
and analyzes baseline data, drafts RFXs, develops evaluation matrices and financial
models, facilitates oral presentations and negotiations. She led the Ariba
implementation team and continues to train global users and facilitate online events.
Joanna has a bachelor’s degree in Economics from Wesleyan University and maintains
a professional designation as a Certified Professional in Supply Management from the
Institute of Supply Chain Management.
© 2013 Ariba, Inc. All rights reserved.3
#AribaLIVE
Selecting the Right Opportunity
• Six C’s
Contractually Available
Commercially Attractive
Competitive Supply Base
Clearly Defined Requirements
Compressible Margins
Commitment
• Scope is clear and consistent: apples to apples
• Preferred or competitively based relationship
• Market evidence of competition
© 2013 Ariba, Inc. All rights reserved.4
#AribaLIVE
Paint Auction Example
• Category: Paint
• Leveraged volume with Smile Brands
• Annual Spend: $2 Million
 Category spend grew 40+% previous year
• 4 paint types = 92% spend
• Primary incumbent for both brands
• Locations also purchasing from 10+
other vendors in a mix of colors and
container sizes
• Incumbent increased PPG (Price Per
Gallon) by 8% in Jan 12’
• 25 bids received during the auction
• Achieved lower price on all items
Background
Build Auction
• Collect baseline data and specs
• Supplier discovery via Ariba Discovery
Network
Auction
Released
• Auction released to 5 pre-qualified national
paint suppliers
Pre-Bids
Solicited
• Pre-Bids received and reviewed
Auction
• Auction held one week after pre-bids received
• Draft auction held 2-3 days prior
Supplier
Selection
• Supplier selection made one week after
auction
• New prices effective within 2 weeks
Process
5-7Weeks
#AribaLIVE
Paint Auction Example
Award Strategy Total Paint Spend
Projected Savings
Differentiator
Lead Bid,
Historical Volume Mix
$120,910 (5%) • Award all liquid paint business to lowest
bidder for each paint type.
• Utilizes historical product volume mix.
Orders split 55/45 in 55 gallon drums to 5
gallon buckets.
Cherry Pick Lowest
Price,
Revised Volume Mix
$190,470 (9%) • Awards business to 3 suppliers based on
lowest bidder of each item.
• Must order at least 90% in 55 gallon drums
Sole Source,
Revised Volume Mix
$174,370 (8%) • Awards all paint business to lowest sole
source bidder
• Must order at least 90% in 55 gallon drums
© 2013 Ariba, Inc. All rights reserved.6
Awarded Sole Source to lowest supplier, previous incumbent
ROI = 30.4x
#AribaLIVE
Interactive Activity: Let’s Lot
Item Quantity Current
Price
Delivery
Location
Current
Supplier
1 100 $5.50 PA ABC Co.
2 250 $10.98 PA XYZ Inc.
3 1000 $15.50 DC ABC Co.
4 200 $6.87 CA XYZ Inc.
5 100 $12.98 DC Item Co.
6 500 $10.25 PA ABC Co.
7 500 $10.25 PA ABC Co.
8 250 $7.50 CA XYZ Inc.
9 1000 $11.00 DC Item Co.
10 500 $8.98 DC Item Co.
• Award Goal
Supplier
Compression
Best Price
Local Award
Options
Global Supplier
Maintain
Incumbents
© 2013 Ariba, Inc. All rights reserved.7
#AribaLIVE
Activity Discussion
The goal of lotting is to combine goods or services into
logical groups or “lots” to encourage competitive pricing
and overall supplier participation. Objective from lotting
should be driven based on project award goals:
• Foster competition
• Reduce complexity
• Prevent “cherry picking”
• Drive award scenarios
• Implementation Feasibility
© 2013 Ariba, Inc. All rights reserved.8
#AribaLIVE
Interactive Activity: Play by the
Rules
Item Quantity Current
Price
Delivery
Location
Current
Supplier
ABC Co. XYZ Inc. Item Co. New
Org.
1 100 $5.50 PA ABC Co. $5.50 $5.00 - $4.75
2 250 $10.98 PA XYZ Inc. $9.50 $10.50 - $16.98
3 1000 $15.50 DC ABC Co. $15.50 $10.25 $10.00 $9.50
4 200 $6.87 CA XYZ Inc. - $6.55 $6.50 $7.00
5 100 $12.98 DC Item Co. $13.00 $15.00 $12.25 $17.98
6 500 $10.25 PA ABC Co. $10.25 $5.75 - $6.00
7 500 $10.25 PA ABC Co. $10.25 $6.00 - $6.25
8 250 $7.50 CA XYZ Inc. - $7.00 $7.75 $7.00
9 1000 $11.00 DC Item Co. $12.00 $8.00 $11.00 $6.50
10 500 $8.98 DC Item Co. $8.75 $8.00 $8.25 $9.50
Item Quantity Current
Price
Delivery
Location
Current
Supplier
ABC Co. XYZ Inc. Item Co. New
Org.
1 100 $5.50 PA ABC Co. $5.50 $5.00 - $4.75
2 250 $10.98 PA XYZ Inc. $9.50 $10.50 - $16.98
3 1000 $15.50 DC ABC Co. $15.50 $10.25 $10.00 $9.50
4 200 $6.87 CA XYZ Inc. - $6.55 $6.50 $7.00
5 100 $12.98 DC Item Co. $13.00 $15.00 $12.25 $17.98
6 500 $10.25 PA ABC Co. $10.25 $5.75 - $6.00
7 500 $10.25 PA ABC Co. $10.25 $6.00 - $6.25
8 250 $7.50 CA XYZ Inc. - $7.00 $7.75 $7.00
9 1000 $11.00 DC Item Co. $12.00 $8.00 $11.00 $6.50
10 500 $8.98 DC Item Co. $8.75 $8.00 $8.25 $9.50
© 2013 Ariba, Inc. All rights reserved.9
#AribaLIVE
Activity Discussion
Market feedback given during an event should be used to
drive competition. Suppliers need to receive information
to understand where they are in the market and
encourage additional bids.
• Starting Gate
• Lead Bid
• Rank
• Full Disclosure
• Line Item Ranking
© 2013 Ariba, Inc. All rights reserved.10
#AribaLIVE
Closing Remarks
• Characteristics of successful auctions
Select the Right Opportunity (6 C’s)
Prequalified Participants
Directly Comparable Pricing
Clear Requirements
Lotting and Market Feedback Strategy
Supplier Communication
© 2013 Ariba, Inc. All rights reserved.11
Questions?
© 2013 Ariba, Inc. All rights reserved.
12

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Solutions Workshop – Auctions in the Cloud

  • 1. Auctions in the Cloud April Miller, Sr. Consultant, BPC, Ariba Joanna Smith, The Estée Lauder Companies © 2013 Ariba, Inc. All rights reserved.
  • 2. #AribaLIVE Agenda • Welcome • Customer Story: The Estée Lauder Companies • Paint Auction Example: Mobile Mini • Interactive Activity: Let’s Lot • Interactive Activity: Play by the Rules • Closing Remarks and Takeaways © 2013 Ariba, Inc. All rights reserved.2
  • 3. #AribaLIVE Welcome Joanna M. Smith Global Indirect Procurement, Estée Lauder Companies Strategic sourcing manager with eight years of professional experience. Currently with The Estée Lauder Companies, Joanna sources goods and services for various internal Brands and corporate functions. Represents GIP on cross-functional teams, collects and analyzes baseline data, drafts RFXs, develops evaluation matrices and financial models, facilitates oral presentations and negotiations. She led the Ariba implementation team and continues to train global users and facilitate online events. Joanna has a bachelor’s degree in Economics from Wesleyan University and maintains a professional designation as a Certified Professional in Supply Management from the Institute of Supply Chain Management. © 2013 Ariba, Inc. All rights reserved.3
  • 4. #AribaLIVE Selecting the Right Opportunity • Six C’s Contractually Available Commercially Attractive Competitive Supply Base Clearly Defined Requirements Compressible Margins Commitment • Scope is clear and consistent: apples to apples • Preferred or competitively based relationship • Market evidence of competition © 2013 Ariba, Inc. All rights reserved.4
  • 5. #AribaLIVE Paint Auction Example • Category: Paint • Leveraged volume with Smile Brands • Annual Spend: $2 Million  Category spend grew 40+% previous year • 4 paint types = 92% spend • Primary incumbent for both brands • Locations also purchasing from 10+ other vendors in a mix of colors and container sizes • Incumbent increased PPG (Price Per Gallon) by 8% in Jan 12’ • 25 bids received during the auction • Achieved lower price on all items Background Build Auction • Collect baseline data and specs • Supplier discovery via Ariba Discovery Network Auction Released • Auction released to 5 pre-qualified national paint suppliers Pre-Bids Solicited • Pre-Bids received and reviewed Auction • Auction held one week after pre-bids received • Draft auction held 2-3 days prior Supplier Selection • Supplier selection made one week after auction • New prices effective within 2 weeks Process 5-7Weeks
  • 6. #AribaLIVE Paint Auction Example Award Strategy Total Paint Spend Projected Savings Differentiator Lead Bid, Historical Volume Mix $120,910 (5%) • Award all liquid paint business to lowest bidder for each paint type. • Utilizes historical product volume mix. Orders split 55/45 in 55 gallon drums to 5 gallon buckets. Cherry Pick Lowest Price, Revised Volume Mix $190,470 (9%) • Awards business to 3 suppliers based on lowest bidder of each item. • Must order at least 90% in 55 gallon drums Sole Source, Revised Volume Mix $174,370 (8%) • Awards all paint business to lowest sole source bidder • Must order at least 90% in 55 gallon drums © 2013 Ariba, Inc. All rights reserved.6 Awarded Sole Source to lowest supplier, previous incumbent ROI = 30.4x
  • 7. #AribaLIVE Interactive Activity: Let’s Lot Item Quantity Current Price Delivery Location Current Supplier 1 100 $5.50 PA ABC Co. 2 250 $10.98 PA XYZ Inc. 3 1000 $15.50 DC ABC Co. 4 200 $6.87 CA XYZ Inc. 5 100 $12.98 DC Item Co. 6 500 $10.25 PA ABC Co. 7 500 $10.25 PA ABC Co. 8 250 $7.50 CA XYZ Inc. 9 1000 $11.00 DC Item Co. 10 500 $8.98 DC Item Co. • Award Goal Supplier Compression Best Price Local Award Options Global Supplier Maintain Incumbents © 2013 Ariba, Inc. All rights reserved.7
  • 8. #AribaLIVE Activity Discussion The goal of lotting is to combine goods or services into logical groups or “lots” to encourage competitive pricing and overall supplier participation. Objective from lotting should be driven based on project award goals: • Foster competition • Reduce complexity • Prevent “cherry picking” • Drive award scenarios • Implementation Feasibility © 2013 Ariba, Inc. All rights reserved.8
  • 9. #AribaLIVE Interactive Activity: Play by the Rules Item Quantity Current Price Delivery Location Current Supplier ABC Co. XYZ Inc. Item Co. New Org. 1 100 $5.50 PA ABC Co. $5.50 $5.00 - $4.75 2 250 $10.98 PA XYZ Inc. $9.50 $10.50 - $16.98 3 1000 $15.50 DC ABC Co. $15.50 $10.25 $10.00 $9.50 4 200 $6.87 CA XYZ Inc. - $6.55 $6.50 $7.00 5 100 $12.98 DC Item Co. $13.00 $15.00 $12.25 $17.98 6 500 $10.25 PA ABC Co. $10.25 $5.75 - $6.00 7 500 $10.25 PA ABC Co. $10.25 $6.00 - $6.25 8 250 $7.50 CA XYZ Inc. - $7.00 $7.75 $7.00 9 1000 $11.00 DC Item Co. $12.00 $8.00 $11.00 $6.50 10 500 $8.98 DC Item Co. $8.75 $8.00 $8.25 $9.50 Item Quantity Current Price Delivery Location Current Supplier ABC Co. XYZ Inc. Item Co. New Org. 1 100 $5.50 PA ABC Co. $5.50 $5.00 - $4.75 2 250 $10.98 PA XYZ Inc. $9.50 $10.50 - $16.98 3 1000 $15.50 DC ABC Co. $15.50 $10.25 $10.00 $9.50 4 200 $6.87 CA XYZ Inc. - $6.55 $6.50 $7.00 5 100 $12.98 DC Item Co. $13.00 $15.00 $12.25 $17.98 6 500 $10.25 PA ABC Co. $10.25 $5.75 - $6.00 7 500 $10.25 PA ABC Co. $10.25 $6.00 - $6.25 8 250 $7.50 CA XYZ Inc. - $7.00 $7.75 $7.00 9 1000 $11.00 DC Item Co. $12.00 $8.00 $11.00 $6.50 10 500 $8.98 DC Item Co. $8.75 $8.00 $8.25 $9.50 © 2013 Ariba, Inc. All rights reserved.9
  • 10. #AribaLIVE Activity Discussion Market feedback given during an event should be used to drive competition. Suppliers need to receive information to understand where they are in the market and encourage additional bids. • Starting Gate • Lead Bid • Rank • Full Disclosure • Line Item Ranking © 2013 Ariba, Inc. All rights reserved.10
  • 11. #AribaLIVE Closing Remarks • Characteristics of successful auctions Select the Right Opportunity (6 C’s) Prequalified Participants Directly Comparable Pricing Clear Requirements Lotting and Market Feedback Strategy Supplier Communication © 2013 Ariba, Inc. All rights reserved.11
  • 12. Questions? © 2013 Ariba, Inc. All rights reserved. 12