Case Study: Fruit and Veg Distributor Cuts Costs by 22%

Overview

The following case study was written with a Market Dojo client within the Irish food distribution industry. The client has numerous growing farms across the world. They supply fruit and vegetables to retail chains across the UK and Ireland. The business has been a family-owned and family-run business from top to bottom for around 80 years, with third-generation family members running the business today. They have production facilities in both the UK and in Ireland. The business has farms in Ireland, Costa Rica and Brazil and strong relationships with suppliers across Spain, France, Germany, Italy, Poland, Brazil, South Africa and Australia. While they have many suppliers growing on their behalf, they like to produce as much as possible within their local climate (Ireland).

The user is the business’s Procurement Manager for Non-Produce. Their team focuses on all indirect procurement on behalf of the group.

Market Dojo’s client was eager to find a solution for strengthening supplier relationships while utilising the procurement process to get the best and most-competitive options. In this case study, we’ll highlight their challenges and the ways in which reverse auctions cut costs and improved their procurement processes. 

Source: Engin Akyurt – Unsplash

Challenge

When it comes to procurement, the team’s primary goal is to provide the highest quality fruit and vegetables, brought in and procured at the most competitive price. However, the indirect procurement team looks after the indirect procurement area of the business, which consists of all purchases outside of fruit and veg such as office supplies, stationery, janitorial services, etc. Both areas of procurement play a vital role and must have appropriate solutions in place to ensure the business gets the best and most-competitive options.

Ensuring quality products is of course top priority, but looking beyond that, they were eager to drive costs down, increase efficiency and waste less time during the negotiation stages. They have a lot of high-volume, low-value expenditures which take a long time to tender and negotiate.

Before working with Market Dojo, the procurement team didn’t use any sourcing tools, just a basic email and spreadsheet system. A completely manual process that lacked the convenience and efficiency of a modernised tech-based system.  They felt that they were leaving money on the table with their suppliers, which inspired their interest in an auction tool with the primary goal of driving savings.

Source: John Schnobrich – Unsplash

The procurement function considers itself to be ‘fairly digitised’ already, as they have an ERP system for invoicing and the purchase-to-pay process. However, there was a need to improve the processes surrounding their procurement activities — as mentioned, focusing on maintaining quality, saving time and cutting costs. With reverse auctions through Sourcing Dojo, this is easily and quickly achievable.  

Solution

Following some research online about reverse auctions, they stumbled upon Market Dojo’s Sourcing Dojo tool and scheduled an introductory call with Adam and the team. From this call, they felt confident it would be a good solution for the business’s procurement needs. This was followed by additional calls to learn more about how the products worked, how they would help them, and how to utilise them to suit their needs.

The introductory call with the Market Dojo team allowed the business to swiftly realise that Sourcing Dojo’s capabilities, in particular reverse auctions, made it possible to mitigate all of their concerns in the space of just a few weeks. Not only this, but it also could offer a highly competitive marketplace for multiple competitors, for key categories such as stationery.

The business found that Sourcing Dojo has a clean interface, it’s easy to use, and helps greatly if you have a competitive costing structure. There’s a lot of value in what Sourcing Dojo offers. When exploring the market for alternative solutions, the business found that there tended to be more focus on features and services outside of reverse auctions. Having felt that money was being left on the table in negotiations, the focus on reverse auction functionality was of paramount importance.

With the Market Dojo team, it was very quick and easy to get set up and the support received from Adam, Eleanor and the support team made the transition to the new process seamless. Most importantly, the functionality worked when driving down costs. Proving that the concept of reverse auctions has genuine value.

Results

The procurement team saw instant results with their first reverse auction, with a high return on investment and savings of 22%. They have a close relationship with many of the suppliers they invited to quote and compete, which helped the process somewhat. It also helped that they had a fairly large spend on these areas, so it was a good contract that appealed to many suppliers.

They found this new system to be straightforward to use, as did their suppliers. This meant that the outcome of the reverse auction was good for the business in a commercial sense and also encouraged competitiveness among suppliers.

The team were also pleased that the suppliers were very much on board with taking part in a reverse auction, but they did need to warm to the idea initially. This is where it is vital to have good communication channels, which is to be expected. The majority of suppliers did compete and competed very well.

For other businesses interested in reverse auctions, the advice would be to ensure your suppliers are organised in advance. Ensuring your suppliers are well informed and are onboard with the concept ahead of the auction is crucial for saving time and maximising efficiency.

The procurement team is confident that there are many opportunities for reverse auctions moving forward, provided that specifications are clearly defined to avoid inferior products being quoted for. This may occur if a supplier just wants to win the auction regardless of whether their products suit your needs. Therefore, the buyer and supplier relationship is critical, and reverse auctions shouldn’t fully replace the procurement process. However, they recognise how valuable Sourcing Dojo is for gaining the best commercial outcome and encouraging competitive auction environments.

Moving forward, they intend to use reverse auctions for other non-core items, as it will most definitely add value and many benefits. Reverse auctions have proved to be hugely beneficial to the business already, especially as they are able to clearly convey their requirements to suppliers and ensure a smooth post-auction process. While they want to cut costs, they don’t want to achieve this goal by procuring cheaper, lower quality fruit and vegetables.

Conclusion

Right now, the procurement team considers itself to be in a very good place in regards to digitalisation. Reverse auctions definitely have improved the procurement process. They do have an ERP system in place for purchase orders and invoicing, but there’s always room for improvement. Reverse auctions are another string to their bow, an additional solution they can use to drive costs. 

Next Steps

Now they have experience and have found some success with reverse auctions and Sourcing Dojo, they want to learn how to be as strategic as possible and utilise the solution to suit their specific requirements. Whether this is discovering the best times to host an auction or just little snippets of information to optimise the procurement process. Essentially a strategic guide to reverse auction best practices.

If you would like to learn about Market Dojo’s services, reverse auctions or any other aspect of the procurement process, check out our Resources Hub or Jacob Gorm Larsen’s book, A Practical Guide to e-Auctions for Procurement.