Forget doing RFQs the old-fashioned way. Buyers and suppliers are doing their jobs more efficiently on the Internet.
This flowchart illustrates how sites like SupplierMarket.com operate. Buyers enter an RFQ, and suppliers enter their capabilities by registering. Buyers and sellers are then intelligently matched. SupplierMarket.com holds a live, on-line bidding session (other sites may offer a sealed bid format). At the end of the bidding, a buyer picks a supplier that best meets its needs.
After entering information on an RFQ, a buyer uploads a CAD drawing. All suppliers, regardless of in-house CAD systems, can view, zoom, rotate, and print these images.
This screen shows information a supplier may see when he reviews an RFQ on the SupplierMarket.com website. This data includes a part description, bid dates, and shipping information. Additional information can be viewed via the "upload drawings" feature of the site.
Another screen depicts a graphical representation of a bidding session. For this particular session, the auction was scheduled to run until noon, but because of extended bidding sessions, the last bid was actually made at 12:20.
All auction bids are listed on this screen. The first bid, for $41,500 (not shown), came in at 11:37. By 12:17, competition drove the price down to $22,900.
Supplier Market's multi-line bidding feature lets suppliers click on the different components that make up an entire assembly. They can then place bids for the entire assembly or just one component. Buyers receive all bids and can choose suppliers in an "a la carte" fashion.
On the SupplierOne.com website, a buyer would see a screen similar to this after the bidding process has closed. By clicking on a company name, the buyer can learn more details about a supplier. He can also place an order. A bulletin board at the bottom shows the questions suppliers had about this job and the answers the buyer posted.
If the inventor of the wheel had decided to start outsourcing parts, the process of requesting quotes would have been pretty much the same as it is today. On the supplier end of the request for quote (RFQ), shops can invest heavily in both time and resources to prepare and submit a bid, then never hear from the buyer again. At some point, all the parties involved have probably wondered if there was a better way to do business. Well, according to one e-procurement website, there is.
SupplierMarket.com is an electronic marketplace where buyers and suppliers of manufactured components — metal, plastic, and other types — can do business with one another. The site gives registered buyers a place to submit an RFQ. Registered suppliers can then be matched with a job, or they can browse open RFQs and nominate themselves. Suppliers prepare and submit quotes, which the buyer compares on-line. Finally, the buyer selects a supplier.
Sounds easy, doesn't it? The e-company says it is. Basically, says Holly Allison, marketing events manager for the Waltham, Mass., based company, the Inter-net takes the traditional RFQ process and turns it on its ear. In addition, the site is secure, and everyone — supplier and buyer alike — is checked out when regis-tering. That way, teenagers, hackers, or anyone else that isn't a legitimate manufacturer never logs on in the first place.
Brett Rockwell, account manager at SupplierMarket.com, says Internet sites offer suppliers business in a volume or duration that they might not normally get. And says Allison, "This is business for which suppliers have not prospected. They have not spent one red cent for marketing, a salesperson's salary, or any sort of leave-behind. This is unsolicited business, which they can win and add to the bottom line." To further illustrate her point, Allison says, "Imagine you're a $5 million shop and, all of a sudden, you get a $60,000 RFQ on which you clear maybe 5%. To a company that size, the money can mean a new roof, heating system, or Christmas bonus for the employees. Or it can mean you work to capacity during a week in August instead of idling."
In just its first week of business, SupplierMarket.com registered 1,000 suppliers and $100 million in RFQs. The site, which launched in October 1999, currently has over 8,800 registered suppliers (both buyers and suppliers at a ratio of 1:1.83, respectively). The idea for SupplierMarket.com, interestingly enough, started with the grandfather of one of its founders.
Lou Hansen owns a machine shop, and one day, he was using the Internet to locate new business. As Allison puts it, "Typing in 'screw' on Yahoo didn't exactly yield the results he was hoping to see." His need prompted his grandson, Jon Burgstone, along with Asif Satchu, to found SupplierMarket.com. The site now facilitates business-to-business e-commerce for small, medium, and large-sized buyers and sup-pliers for any type of direct-manufactured products or materials, including fasteners, metals, plastics, and packaging.
"SupplierMarket.com wanted to be the matching portal for both buyers and suppliers so that a company like Lou Hansen's Hansen Enterprises could register their core competencies — no matter what their size," says Allison. Core competencies include a company's technical specifications, its years in business, and its quality-assurance certifications.
By company estimates, the site slashes about 70% off the time spent preparing RFQs, sending them out, and selecting a supplier. Bill Sheehan, director of business development, says, "This relieves so many hassles at so many levels, without threatening the procurement guy. Often, an e-procurement solution borders on replacing the procurement professional. This, however, is a tool for those people to do their jobs better and look like heroes."
The buyer submits an RFQ
With SupplierMarket.com, registered buyers create an RFQ using a standard on-line form. Buyers fill out a description of the part, the material from which it is made, the machining processes used to make it, and so forth. They also provide other details, such as the delivery terms.
In addition, the site asks the buyer to upload or fax a CAD drawing with the RFQ. The Inter-net service converts the drawing into a format that everyone can view — no matter what Internet browser is used — ensuring that all suppliers see the same rendering of a part.
On the RFQ, the buyer determines how many bids he will accept, the timeframe for bids, and the geographic areas from which suppliers will be accepted.
The service provides tutorials and on-line help for new users. Allison says, "If you are on our site and pause at any of our fields for longer than 30 sec, a face pops up, asking you if you need help. If you do, we'll conduct a live, inter-active chat to get you past that roadblock."
Suppliers interested in registering at the site have to provide accurate information about their companies. Among other things, a registrant must supply the name, address, and phone number of the company; its annual sales; square footage of the facilities; and the company's quality certifications (if any).
Allison says there is a stringent approval process: "Our customer service department goes through three separate web verifications of a registration profile. No one goes up on the site until we speak directly to them, and their information has to match up completely. If there is a discrepancy, that person is not allowed on the site." The site also verifies information through Dun & Bradstreet as well as Infoseek.com, Yahoo Yellow Pages, and InfoLookup.
Matching buyer with suppliers
After the buyer and his bid check out, SupplierMarket.com posts the RFQ and notifies all registered suppliers with capabilities that match the buyer's specifications. In addition, registered sup-pliers can nominate themselves for a job if they see it while they are browsing open RFQs.
"Say you ask for a supplier within a 200 mile distance of Detroit," remarks Allison, "one that has to have at least $8 million in annual sales, and one that is minority owned. We'll return to you only the suppliers that meet those qualifications and that can meet the RFQ. Registered buyers — say they just bought a new piece of equipment or just acquired another company — can also browse through all the open RFQs. If they find something they can handle, they can nominate themselves."
In some cases, comments Rockwell, "We might have 50 suppliers that fit the bill. If so, we ask the buyer to narrow the field — perhaps by limiting bids to a certain geographical region." He says that to be an effective tool for the buyer, the reverse auction should only pit 5 to 10 suppliers against each other. That way, the buyer doesn't spend an excessive amount of time screening the bids.
The buyer, of course, always gets the final cut. He can review the self-nominated and the site-matched companies and eliminate anyone he chooses. The buyer can also ask that his regular suppliers be invited into the bidding.
Once the buyer and the suppliers are lined up, the real fun begins. In a traditional RFQ process, the buyer can receive a barrage of phone calls from sup-pliers trying to clarify the job parameters. Maybe it's a question about tolerances or about a certain part feature, like a hole. Fortunately, this kind of Internet service excels in this part of the process.
The site lets suppliers post questions about an RFQ on a message board. The beauty of this system is that the buyer only responds once to any given question. Everyone involved in the bidding gets an e-mail about the posting. This means that the buyer is not wasting time answering the same question repeatedly, and, for the supplier, the playing field is level when the bidding starts.
"For buyers alone, the timesavings is worth it," explains Allison. "The fact that we drive down costs anywhere from 15% to 20% is just a bonus. With us, the buyer can set the date and time of the auction, along with the nomination period. We've done the negotiating for you."
The site uses a reverse-auction format, which it feels provides the best value for the buyer and healthy competition for the supplier. Although suppliers may be somewhat hesitant at first, they soon enjoy the head-to-head competition found in a real-time reverse auction, reports Sheehan.
"The auction itself is neutral in that everyone sees everything about everybody," he says. "At first that sounds like a bad thing for suppliers, but in fact, some suppliers like this better than sealed bidding because they now know what the competitive bids are. And they aren't left wondering why they weren't chosen."
Rockwell says the company is getting great feedback from the participants — even the ones that didn't win a bid. "They all say it was a good experience and that the auction really kept them on the edge of their chairs."
A key advantage of the site is that it lets small to medium-sized companies compete directly with larger tier ones and tier twos for equal business. For example, says Allison, the site doesn't recognize the difference between a $10,000 RFQ and a $10 billion RFQ. "It's the same with the human aspect of our company," she remarks. "The same number of people are involved in the $10,000 RFQ as there are in the $10 billion RFQ. We're completely neutral, favoring neither buyers nor suppliers."
One of the more interesting aspects of the site is that it allows for multi-line, or line-item, bid-ding. Buyers can write an RFQ with many lines (parts), giving suppliers the option to bid on the individual lines of the RFQ, the entire RFQ, or subsections of the whole order. The buyer, in turn, has the opportunity to select either a supplier or group of suppliers based on the bids.
The newest version of Supplier-Market.com boasts an extended bidding feature. This prevents someone from waiting until the last minute to bid to undercut everyone else. If a low bid is submitted within the last five minutes of the auction, the session is automatically extended five min. If a bid is placed during the extended session, then the auction is extended another five min, and so on. An easy way to think of it: An extended bid-ding session is to an auction what automatic overtime is for a playoff game. It keeps the competition fair.
If, at any given time, a supplier simply can't participate in an auction, supplier managers at SupplierMarket.com can accept bids on its behalf. Suppliers can tell the supplier manager to submit an initial bid, and then, if the bidding reaches a certain point, enter a lower bid. Supplier managers also answer questions that a buyer or a supplier might have during the auction.
At long last, acceptance
The final step in the on-line process is picking the winning bid. Once all the quotes are in, the buyer gets a list of all the bids and the specifics of each bidder. While listed in order from highest to lowest, the bid list also contains registration information on each supplier.
That's why it is important that suppliers fill in the registration forms completely, recommends Sheehan. In some cases, a buyer will make his final selection based on other factors than the lowest price — for example, whether the supplier is ISO 9000 certified or minority-owned. "It's not always the lowest bid," he reports, "but the best value."
Most RFQs settle terms such as delivery. However, SupplierMarket's account managers make sure that once an order is made, there is "due diligence." This means that the supplier provides what he says he will and the buyer will pay him on time.
The site does have a ranking system, similar to how Amazon.com has readers rank books and CDs. Companies can review comments about buyers and suppliers alike. Here is where companies can detail their experiences with each other — for instance, if a supplier doesn't deliver as promised or a buyer is a slow pay.
But at what cost?
The site charges a transaction fee of 2% to 4% of the closing RFQ value. Only the winning supplier pays the fee — the services are free to the buyer and the other suppliers.
The pricing structure is as follows: Business of $100,000 (total value of the RFQ) is charged 4%. Between $100,000 and $500,000, it drops to 3%, and anything above $500,000 is 2%.
There are no restrictions on future business between buyer and winning supplier. In fact, says Allison, her company hopes that the relationship between the two is such that the buyer automatically turns to the supplier for his next job. "We have no dibs on secondary contracts," she adds.
In the future, SupplierMarket.com promises to add features that will improve the collaboration between suppliers, buyers, and the sites themselves. Part-nerships with logistics providers and financial institutions could be two such enhancements.
The company knows that there are still plenty of skeptics around, but in the long run, they see companies embracing this kind of technology. "These companies are smart," says Sheehan. "Right now, they're wondering how they can embrace these new technologies without some huge investment in new software. Sites like ours provide Internet solutions — all you really need is a blueprint and an Internet connection."
In the market for a supplier?
During its beta testing phase, SupplierMarket.com asked Universal Products Inc., Brockton, Mass., to help it meet the needs of an industrial customer. The custom stamping and assembly house serves the capacitor, battery, appliance, medical, and aerospace industries and was the perfect guinea pig for the new Internet site.
Now that the site is up and running, Universal Products has registered as both a buyer and a supplier. Adam Rubin, company vice president, recommends the service, stating, "This is the way business is going to be conducted. If shops don't get on now, their competition is going to beat them to it. I think companies are either going to participate willingly, or they won't be around to participate at all."
Although the company has not yet gone through a bid-ding process as a supplier, it did have the chance to out-source a job using SupplierMarket.com. "The experience was an efficient use of time. It was easy, quick, and didn't cost me any money," states Rubin.
His job involved purchasing aluminum dummy pins for his capacitor assemblies. "Basically, I wanted to know if we were getting a good price from my existing vendor and if I could better the price from some potential source I've never heard of before," he explains.
Rubin faxed in SupplierMarket.com a copy of his print and then specified the number of pieces for which he needed a quote. He ended up with five bids and saved roughly five hours of work. "If you look over the hundreds of thousands of components that I'm either manufacturing or buying, five hours is a lot of time," he says.
Initially, he was concerned that he was giving up a lot of the control he had over the RFQ process. "When you're doing the research, you learn about the vendors and their capabilities. With SupplierMarket.com, you're relying on them to secure the information and to do the prequalification process."
The concept was strange at first, but he soon got past it. "Once the bidding starts, you can see the supplier qualifications. If you don't like someone's qualifications, you don't have to use that vendor. So my concern turned out to be a fear over nothing."
As of yet, Rubin has not been matched up with an RFQ as a supplier. But he says it is just a matter of time and that he looks forward to the experience. "Now that I've seen how the process works as a buyer, I think I am better prepared than someone trying the service for the first time," he explains.
The new kid on the block
E-procurement sites are springing up all over the Internet. In addition to SupplierMarket.com, machine shops can use FreeMarkets.com, Ariba.com, and CommerceOne.com. One brand new site, which launches this month, is SupplierOne.com. Although it currently focuses on matching OEMs and suppliers of machined parts, castings, sheet-metal parts, extruded parts, blow-molded components, and injection-molded parts, it will soon include other categories.
This new site has been in beta testing since November 1999, but it already has more than 1,000 registered suppliers and $25 million in potential orders. "This type of technology is ideally suited to the outsourcing found in industry today," says Art French, SupplierOne.com CEO. And in lean times, it can help a shop maintain full capacity.
Sourabh Niyogi, president and founder of the Houston-based company, says that using the Internet can save both buyers and suppliers time and money: "All the time that buyers spent phoning and faxing is now replaced with a couple of minutes of submitting an RFQ and placing an order. Buyers save money by having suppliers compete for a particular job. Suppliers, on the other hand, have a new forum to earn business that they wouldn't have ordinarily seen before — with almost zero investment."
SupplierOne.com offers three bidding choices. The first, a sealed bid, is a traditional approach, where suppliers do not see competitor's bids. The second choice, open competition, lets suppliers see one another's bids. Reverse auction, the final choice, not only lets suppliers see other's bids, but it also requires that new bids be lower than the lowest submitted bid. The company reports that most of its buyers opt for the sealed-bid format. Many of its customers say that they are more comfortable with this traditional method.
The buyer is not charged for using the Internet service. On the supplier side, only the winning company pays a transaction fee. This fee ranges from 2% to 4% of the closing RFQ value.
Although the Internet is where the initial deal is made, Niyogi says that the final terms are arranged between the buyer and supplier. "We don't prevent or discourage the buyer from making a site visit. In many cases we believe that's necessary to set up long-term arrangements. However, we streamline the paperwork process as fully as possible taking advantage of all the things the Internet can do."
French reports that the agreement reached through SupplierOne.com is like any agreement. "It's the same whether it's done on-line or face-to-face. The buyer always has options if the quality aspects or the delivery aspects are not met as promised."
SupplierOne.com currently verifies suppliers and buyers by checking their information with Dun & Bradstreet. And, in the future, Niyogi states, "We will be using other financial databases to verify that the buyer, in fact, can be a paying customer of a particular supplier and to show buyers the supplier's financial health."
The site already has satisfied customers such as Dynacut Inc. of Springtown, Pa., and Ram Winch and Hoist Co., based in Houston. These two buyers have not only saved time during the RFQ process but also cut the prices they had to pay for parts.
Russell Slegel, who handles prototype development and design for Dynacut, says his company sometimes gets strapped for time and can't make parts for its cutoff machinery. Because many of Dynacut's local suppliers have closed shop over the years, Slegel used the Internet to find new business partners. "We're using the Internet to outsource a lot of our parts," he comments.
All of Slegel's on-line experiences have been positive. On one job, he posted an RFQ for a high-precision, aircraft-aluminum rotary seal housing. The part is black anodized and has bore and threading tolerances of 0.0005 in.
The last time Dynacut had a large quantity of the parts made was years ago, by a friend of the owner, who gave the company a deal. "We got the parts for $7.50 each," says Slegel. When it came time to re-order, Dynacut figured that the part would cost about $16. "When we went on SupplierOne.com, we got one quote for $18, one for $17, one for $9, and one for $6.95," Slegel remembers. The winning bid, the one for $6.95, came from a CNC shop in Milwaukee.
"I can't see how anyone could have a bad experience with this," says Slegel. "You post an RFQ, and the worst thing that can happen is that no one bids on it. And if no one bids on it, chances are that you're not getting any bids around your hometown either."
According to Slegel, filling out the RFQ was a breeze. It took just 15 min. "You fill in your information, attach a blueprint, and send in the RFQ. Within two to three days, SupplierOne.com sends an e-mail reminding you to stop by the site and check out the quotes," says Slegel. "I generally give it a week to make sure I have three or four bids," he adds.
Slegel just went through a traditional bid process and only ended up with one bidder. "It was no picnic calling all those shops and being put on hold," he remarks. He estimates that SupplierOne.com saved him at least four hours of extra work.
Jerry Browning, a buyer for Ram Winch and Hoist, has a similar story. The company, which services the offshore oil field market, makes winches, hoists, and custom material-handling systems. It outsources all of its machine work.
Browning says he stumbled across Supplier-One.com and decided to give it a shot. He sent in an RFQ on a small fastener made from 316 stainless steel hex bar. "I got a great price on it," he remarks. "Apparently the supplier had some of the stock laying around, which is the biggest problem with a job like this — it costs so much to get the material. And the job was only for 50 pieces."
To test the service, he also asked local machine shops for quotes. "I had to copy the drawing, fax each supplier, wait for the faxes to come back, and go over the pricing," he says. "Depending on how many vendors you talk to, this process can take a couple of hours or more. With the web-site, I finished my RFQ in 10 min. I simply check the site once a day to see the bids." He has also made use of the site's electronic bulletin board, which he thinks is a great way to answer supplier questions.
Browning received approximately 10 quotes on his job, with a high price of $14 each and a low price of about $6.50.
Once Browning selected a supplier, he called the company to discuss terms. "We set it up just as we would with any other vendor," he claims. If the parts weren't up to spec, Ram could always return them.
Browning says he will continue to use the service. "In Houston, the oil-field business is in a drought, so it's easy to get a good rate on machine-shop work. But when things start booming, you often have to overpay. I'm expanding my vendor database and getting first-rate quotes without doing all the legwork. Suppliers come to me."