Toro moves from e-auctions to SRM strategy
By Purchasing Staff -- Purchasing, 4/6/2006 2:00:00 AM
Online reverse auctions proved successful for Toro until 30- 50% of suppliers starting dropping out. “Even when their business depended on reverse auctions, they wouldn’t go for it,” says Deb Lynch, director of sourcing and supply management for Toro, a landscape equipment manufacturer. At first, the auctions proved good results and the sourcing team worked to auction commodities that didn’t have costs associated with moving or complexity.
Lynch says the team was careful to get bid packages out to participants with specifications so they could understand, thoroughly, what they were bidding and how to place their pricing.
After using e-auctions for a while, though, Toro started to realize suppliers were not meeting the needs of the contract because they had underbid.
“Suppliers got too aggressive and had to come back to us and say, ‘we can’t do that,’” says Lynch.
After a while, no matter how hard the team worked to educate suppliers, a percentage simply refused to e-bid and stopped quoting. “These suppliers wanted to be treated in a different manner. They wanted us to look at total cost and their purchase value, not just purchase price,” says Lynch.
Another advantage to e-auctions is they provide visual data, which would be lost. The sourcing team can better understand profit margin capabilities and aggressiveness by watching suppliers in the online bidding process. Also, the team got a regional comparison of pricing by hold global auctions. In the offline world, all the data has to be compiled manually.
The answer? Today, Toro has moved to a more SRM-heavy strategy using a rating system developed internally that pulls information from a database using tools from both SAP and Emptoris to look at the suppliers’ quality, delivery, cost reduction, innovation, warranty and produce an indexed score.
The Toro team looks for suppliers that provide flexibility to its manufacturing schedule, have sound financials are willing to share ideas for cost reductions.
“Our philosophy is to work on total cost with suppliers instead of beating them with price,” says Lynch.
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