Twistedbuyer Procurement Concept
Marilyn Marks, CEO of Truckbay, asked me to analyze years of procurement records from eight of the major trucking fleets that were investors in the company. Truckbay was a transportation vertical marketplace (aka an “exchange”) similar to exchanges that popped up for every industry during the dot com era.
Like the other exchanges, Truckbay learned that inserting a new player into established marketplace value chains was easier said than achieved. I was asked to cross reference the inventory of products in our limited catalog against buyer’s procurement records to identify any parts we could provide at a lower cost to the buyers.
I spent several weeks normalizing this procurement data. I proved conclusively that Truckbay’s limited buying volume yielded no substantial value for buyers.
I then shared a discovery that I’d made during the analysis…
Even though the small catalog of Truckbay inventory couldn’t compete with the prices negotiated by fleet procurement staff, I discovered that each of the eight companies bought some items at better prices than the other companies.
This intuitively made sense. No company can negotiate the lowest possible rates for every purchase. As a result, no company could beat the combined best negotiated rates of all the companies combined.
Extracting these best negotiated rates from each of the eight buying companies, I could inform their procurement departments where additional negotiation was possible simply pointing out that another company had done so.
I’d discovered something no one else had noticed (and apparently no one has to this day).
The reason vertical markets failed was that suppliers of chemicals, steel, trucking parts, etc. realized from the outset that supply aggregation commoditized their products,driving margins down. At e-STEEL, for example, there was no challenge registering buyers, but suppliers held out for stock options and kept exchange prices higher than their normal channels, thereby starving the vertical marketplaces of value as shown below.
But my discovery produced a business model that didn’t require a single supplier and still produced the equivalent pricing commoditization buyers wanted. My concept transformed old procurement records with essentially no value, into a benchmarking resource that would twist the long-established, little changed buyer-supplier information disadvantage – in a potentially significant way.
I could take exported procurement logs, remove buyer identities (leaving in supplier identities) and produce recommendations that reduced the spend of every buying company without requiring them to purchase off-brand products – simply by giving them the lowest price anyone else had negotiated for a given item – a piece of data that the least effective procurement agent could easily use to obtain a matched price/volume.
Unlike the exchange model that required cooperation of both buyer and supplier, my model required only the cooperation of buyers – the end of the value chain that benefited from my data the most.
I presented my exciting discovery to Ms. Marks, but by this time, the failure of exchanges in every industry was becoming evident and Truckbay was abandoned.
On my own, I began to develop a proof-of-concept while working with Blackfin in Atlanta. I’d already wiped the normalized procurement data, so I developed a web application for users to review, list and sort it. I also gave them comparison tools to benchmark their procurement savings against the lowest negotiated rates.
I began the process of patenting the concept. Patenting a business process is costly. I spent about $10,000 on round after round with the USPTO before I shelved the concept. To this day, I believe it is one of the best ideas I’ve developed. I believe it would have changed the procurement process in a wholesale way and could easily be expanded into consumer applications.
Like to read my patent filing (9.7mb PDF)?