A focus on e-auctions for guest-facing food and drink helped sell the benefits of an e-procurement system.
Using an e-procurement system is effective, but it is the e-auction tools that provide the best savings, says John Butcher, who introduced both during his time as CPO at Merlin Entertainments.
The UK-based global company runs 124 attractions, from Madame Tussauds and the London Eye in London to eight Legoland sites, including one in Japan. Listed on London’s stock exchange, a third of the FTSE 250 firm’s spend is in the UK, with the individual attractions purchasing locally, supported strategically by the central procurement team, which runs larger projects and provides specialist procurement skills.
While efficient creation of RFPs on an e-procurement system is a clear benefit to the procurement team, it was the more specific auction tool in the system that Butcher used to build a business case within the company. Efficiency is not easily explained or proven, says Merlin’s former CPO, and there is a danger that a CFO may simply say ‘great, we can do more for less’. “But if you talk about the price of physical goods before and after [the system], the results are unarguable,” he says.
Butcher chose the UK Food and Beverage category to demonstrate e-auctions to the business, and picked out key items that would resonate with the internal stakeholders, ones that were easy to specify and that had sufficient supply competition – a fundamental requirement of auctions. For Merlin sites, this meant guest-facing coffee, burgers and confectionery, crisps, hotel room nights – and salt for the Sea Life Centres.
He prepared and presented a plan to the CFO and CIO to buy the e-procurement system and set up electronic auctions for these items, making enough savings to pay back the cost of the system in a year, and to turn a profit by year two.
“It was a portion of our expenditure that we already knew well; the stakeholders could see and feel it, and they could easily understand that delivering the same item for a lower cost is a saving,” he says. “They signed off on two years’ worth of investment, starting with a six-month pilot followed by a gate review. They were prepared to invest in a system that could expand,” he adds.
With a new e-procurement system in place for eRFPs, eRFIs and e-auctions, the central category manager started to run auctions for the core products in the pilot, purchasing centrally. Within six months, and with six active users, the team had hit break-even point, six months ahead of schedule. “We saved between 12% and 22% on everything,” recalls Butcher. “Then we shouted about the successes to the wider procurement community.”
In monthly calls to the local procurement teams, Butcher shared the savings made through the auctions. “I said, here’s the success of the pilot, now can I train your team in how to use the tool?”
By December around 25 users were registered, and RFPs and auctions in the US, Denmark and Germany were starting to appear on the system.
Butcher’s advice for presenting a business case is simple: pick the right category, the right person – enthusiastic about the system’s potential – and the right suppliers. Then start running auctions quickly to generate savings and prove the concept.
Sea in the dark
A new Sea Life Centre in the US was under way, and budgets were tighter, so procurement looked at sourcing some things differently, to cut costs without affecting the end product. Rather than outsource to external procurement agents, they turned to the e-sourcing tool on the new system.
It started with procuring lighting for one attraction, “but then we rolled it out to two others, adjusting the budgets down for those because we had a new market price based on the first package of lighting,” says Butcher, with about $1m per lighting package.Running an auction “helped force a better discipline of having a clear specification upfront”, says Butcher.
With more time planning and less time executing the negotiation, “we reached the negotiated decision point quicker”.
Increased competition drove down prices faster and further than a few rounds of traditional RFP and negotiations, he says.