With New Legislation, Comes Decision Time
Legislation promises to usher in a new era of efficiency and cost savings for thousands of Pennsylvania counties, municipalities, school districts, and others. Under the Local Government Unit Electronic Bidding Act, PA Act 88 of 2006, Pennsylvania’s local governments can now use the Internet to accept bids electronically and to conduct electronic reverse auctions. Effective September 5, 2006, the act was passed unanimously by the Pennsylvania Legislature, and signed into law by Governor Ed Rendell.
These entities may have missed the early days of reverse auctions when margins were astronomical, but today’s online events offer advanced technologies that enable the negotiation of multiple variables beyond price, such as delivery, lead times, capacity, innovation, and landed costs. For additional capabilities, optimization technologies provide advanced analytics and decision support tools that enable the automated and simultaneous evaluation of thousands of price and non-price factors and allow suppliers to offer alternative bundles and offers. Importantly, optimization empowers the analysis of all these factors within the objectives or “constraints” of the business, such as set-asides for women- and minority-owned businesses or risk management strategies.
Platforms are available to manage the entire strategic sourcing life cycle–from initial supplier identification and collaborative requirements development to ongoing project management and scoring.
Newly enabled entities have a number of technical and business decisions ahead: one being, whether to manage sourcing or reverse auctions with internal resources or outsource to a third-party partner.
Reverse auctions are an valuable resource in any sourcing manager’s tool kit. However, success is largely dependent upon effective preparation, set-up, and management of the online event. Sourcing managers must be trained in how best to incorporate reverse auction approaches into their overall sourcing and supplier management strategies, as well as reverse auction techniques and technologies–such as optimization–in order to ensure continuous improvements in results and to capitalize on changes in supply market dynamics.
While an end goal of a successful procurement organization should be self-sufficient management of all online sourcing projects, the reality may lie somewhere in between. Many government entities license or subscribe to an e-sourcing solution and “learn the ropes” of e-sourcing through outsourced or coached support from the provider or a third party. Once organizations grow comfortable with how to incorporate e-sourcing tools into their overall sourcing process, they move to self-sufficiency and manage most online sourcing projects on their own.
Entities with a limited procurement staff may find reverse auctions and other online sourcing techniques to be beyond their capabilities. A solution provider or third party may be necessary to locate new spend categories for continued e-sourcing success.
No matter what decisions Pennsylvania’s local entities make regarding new technologies, I encourage all procurement officials to begin using a reverse auction tool. The high margins of the late 1990s may be percentages of the past, but these online events allow entities to maintain best market price, reduce time spent in negotiations, and provide an efficient way to receive final offers from a group of suppliers.
I am pleased to announce the launch of the redesigned www.govpro.com, hosted by Government Procurement and Government Product News. The site’s greatly enhanced search engine allows visitors to locate articles and topics by keyword, issue date, and author. The Product Centers include articles, news, and products from 19 topical categories. Visit the Supplier Directory to search by supplier, keyword, company, or industry category, and request information from companies directly from the site.
I hope the GovPro Resource Center will become your source for best practices and content related to many aspects of the procurement professional’s job. Visit www.govpro.com today!
