MFG.com: Is Free Worth It?
AMR's Mickey North North Rizza recently authored a brief titled "Sourcing for Free". Focusing on MFG.com, her write-up considers the question of whether it's worth the time invested to work with Spend Management vendors that are free to buying organizations. The main focus of her analysis of MFG.com, a marketplace provider that charges suppliers to participate on its network, is to offer a short summary of what the vendor can offer to manufacturing and procurement organizations by looking at one users' experience. Her example shows the power of MFG.com to help smaller buying organizations source low volume parts. In our experience with MFG.com, we can also vouch that the system delivers on its promise of helping companies find new suppliers, especially in the machinings area.
But free is free, and MFG.com has some shortcomings when it comes to strategic sourcing. For one, MFG.com has far fewer qualified suppliers when it comes to specific industry qualifications (e.g., ISO/TS in automotive), as the system favors more job-shop type suppliers. But more important, MFG.com does not provide end-to-end sourcing workflow and process from a buyer's perspective, and lacks the ability for buyers to roll-up their category spend information, and have suppliers look at it on an aggregate level. It also forces companies to work through MFG.com's web-based interface rather than their own platforms, forcing companies to manually integrate data from the web-application with their own. At the same time, MFG.com also discourages efficient types of sourcing behavior by approaching the quoting process from a "scavenge the universe of suppliers on a unit level perspective" rather than looking at how organizations can best consolidate spend by having fewer suppliers quote for more of the business.
In other words, MFG.com is ideal for helping companies identify new sources of supply if they have the time to consider suppliers on a unit -- rather than category -- level. It also works from a tactical buying approach, and can help companies benchmark their current unit cost pricing quickly (especially if suppliers are passing along price increases). But essentially, in its current release, MFG.com is a tool that is best for engineers in the prototyping phase looking to develop target costing information for new product launches rather than a tool for procurement organizations which already have sourcing platforms in place to bid out spend on a category basis.
Still, MFG.com does have a lot of things going for it. For example, it offers a good supplier rating system, unlike Thomas Register or other such free services. In addition, we really like how the system tracks award decisions, allowing buyers and suppliers to know who is serious and who is not. Consider how suppliers can see if buyers use the tool to make contract awards versus merely using the system to hammer their incumbents or to benchmark the market. This goes beyond what other sourcing platforms provide to suppliers in the way of feedback since losing suppliers are typically kept in the dark about actual contract award decisions. Because of this, many suppliers are negatively biased towards all of the major platforms -- from Ariba to Emptoris to Procuri to Iasta -- on the market because they do not believe that participating in online negotiations is a good way to win new business. An eBay-styled rating model does give suppliers a better opportunity of winning the business. Perhaps MFG.com could offer some type of 2.0 Web Service to other providers with this type of supplier / buyer ranking mechanism.
But perhaps the most differentiating aspect of MFG.com is the supplier-pays business model. As discussed, we've observed over the years how a buyer-pays model can distort a truly level playing field (e.g., buyers can use it to beat up their incumbents or simply to benchmark, without giving new suppliers a fair shake). A supplier-pays model means that all parties have a vested interest -- and the ability to provide feedback -- to keep the system fair and open. If buyers do not play by the rules, they’ll be ostracized in the future.
In short, MFG.com is a fascinating study of a different way of doing business in the Spend Management world. And for procurement organizations, we can see how it can certainly serve as an invaluable point tool for supplier identification or tactical quoting. We can also see a scenario where MFG.com enhances its strong capabilities for engineering organizations to work more closely with procurement by allowing for true category-based sourcing approaches. But until this happens, it will remain a stronger quoting and costing tool for engineers rather than a platform for buyers and purchasing professionals. It does not help bridge the engineering and procurement gap today, but perhaps it will in the future.
- Jason Busch (Aptium Global's Lisa Reisman, an MFG.com user, also contributed to this entry)
But free is free, and MFG.com has some shortcomings when it comes to strategic sourcing. For one, MFG.com has far fewer qualified suppliers when it comes to specific industry qualifications (e.g., ISO/TS in automotive), as the system favors more job-shop type suppliers. But more important, MFG.com does not provide end-to-end sourcing workflow and process from a buyer's perspective, and lacks the ability for buyers to roll-up their category spend information, and have suppliers look at it on an aggregate level. It also forces companies to work through MFG.com's web-based interface rather than their own platforms, forcing companies to manually integrate data from the web-application with their own. At the same time, MFG.com also discourages efficient types of sourcing behavior by approaching the quoting process from a "scavenge the universe of suppliers on a unit level perspective" rather than looking at how organizations can best consolidate spend by having fewer suppliers quote for more of the business.
In other words, MFG.com is ideal for helping companies identify new sources of supply if they have the time to consider suppliers on a unit -- rather than category -- level. It also works from a tactical buying approach, and can help companies benchmark their current unit cost pricing quickly (especially if suppliers are passing along price increases). But essentially, in its current release, MFG.com is a tool that is best for engineers in the prototyping phase looking to develop target costing information for new product launches rather than a tool for procurement organizations which already have sourcing platforms in place to bid out spend on a category basis.
Still, MFG.com does have a lot of things going for it. For example, it offers a good supplier rating system, unlike Thomas Register or other such free services. In addition, we really like how the system tracks award decisions, allowing buyers and suppliers to know who is serious and who is not. Consider how suppliers can see if buyers use the tool to make contract awards versus merely using the system to hammer their incumbents or to benchmark the market. This goes beyond what other sourcing platforms provide to suppliers in the way of feedback since losing suppliers are typically kept in the dark about actual contract award decisions. Because of this, many suppliers are negatively biased towards all of the major platforms -- from Ariba to Emptoris to Procuri to Iasta -- on the market because they do not believe that participating in online negotiations is a good way to win new business. An eBay-styled rating model does give suppliers a better opportunity of winning the business. Perhaps MFG.com could offer some type of 2.0 Web Service to other providers with this type of supplier / buyer ranking mechanism.
But perhaps the most differentiating aspect of MFG.com is the supplier-pays business model. As discussed, we've observed over the years how a buyer-pays model can distort a truly level playing field (e.g., buyers can use it to beat up their incumbents or simply to benchmark, without giving new suppliers a fair shake). A supplier-pays model means that all parties have a vested interest -- and the ability to provide feedback -- to keep the system fair and open. If buyers do not play by the rules, they’ll be ostracized in the future.
In short, MFG.com is a fascinating study of a different way of doing business in the Spend Management world. And for procurement organizations, we can see how it can certainly serve as an invaluable point tool for supplier identification or tactical quoting. We can also see a scenario where MFG.com enhances its strong capabilities for engineering organizations to work more closely with procurement by allowing for true category-based sourcing approaches. But until this happens, it will remain a stronger quoting and costing tool for engineers rather than a platform for buyers and purchasing professionals. It does not help bridge the engineering and procurement gap today, but perhaps it will in the future.
- Jason Busch (Aptium Global's Lisa Reisman, an MFG.com user, also contributed to this entry)
I just read your blog and wanted to say “THANKS” for your thoughts. We appreciate your highlighting the AMR report and we thought you made some interesting observations. There were just a few things I wanted to clarify for you and your faithful bloggers.
First, our company name is MFG.com. We used to go by MFG Quote, but we’ve changed the name because our platform is not solely about quoting. Your point on favoring job-shops is accurate, but it is because our marketplace is focused on custom manufacturing, which is done by “job-shop type” suppliers as you refer to them. But many of these suppliers have ISO / TS and other industry-specific certifications.
You also mentioned that we “do not provide end-to-end sourcing workflow and process from a buyer's perspective, and we lack the ability for buyers to roll-up their category spend information, and have suppliers look at it on an aggregate level.”
What MFG.COM PROVIDES to buyers is a very simple, easy-to-use, completely free sourcing solution in which they acquire competitive bids from qualified suppliers in a very short timeframe, which in turn arms them with everything they need to make informed buying decisions. Short of optimization tools, it is an end-to-end solution.
We would not try to roll-up category spend information for custom manufactured parts as one would for standard products. For example, if one were to roll-up machining costs, it is difficult to draw conclusions or actionable objectives from machining parts with completely unique dimensions, material compositions, and mechanical / performance characteristics resulting in distinct cost structures. We have found that spend on custom manufacturing can only be meaningful at the unit level.
On of your final points was how MFG.com “…discourages efficient types of sourcing behavior by approaching the quoting process from a "scavenge the universe of suppliers on a unit level perspective" rather than looking at how organizations can best consolidate spend by having fewer suppliers quote for more of the business.”
We have found that what works for indirect spend does not necessarily work for direct spend and what works for some kinds of direct spend does not work for others. Consolidating material or component suppliers to leverage volume discounting makes sense, but that does not necessarily work for metal working or metal fabricating suppliers. Machine capacity and labor availability have more of an impact on the pricing of custom manufactured parts or components than does the volume to be manufactured. Consolidating machining suppliers, for example, adversely affects these factors. That is why the open marketplace is so efficient; suppliers with available capacity identify themselves to buyers.
Thanks again for your thoughts!!
Thanks for your very thoughtful reply. You raise a lot of good points and in fact, we can attest to the fact that many of the suppliers on MFG.com (thanks for the correction) are in fact ISO or TS certified. I'd also like to add that we personally found incredible value in using the MFG.com platform (and would highly recommend it to any manufacturer)
I'm not going to comment on whether or not what you offer is end-to-end or not. I'll leave that to the bloggers.
But I would like to point out that it is possible to save dollars on "machinings" even, if they are all custom jobs as you rightly state. Available capacity is the biggest issue with machinings but we've learned that most buying organizations have little to no knowledge of underlying metal costs or underlying process costs (e.g. forging or casting), the % of processing that makes up total cost and supply market capacity. In addition, many companies are not taking advantage of LCCS for machinings. So in short, there are many "levers" to obtain substantial category savings. It has been our experience that rolling up the individual line items to create a "category" spend does help in the process of identifying savings. For larger organizations with thousands of line items of machinings for example, we feel that it is critical to roll up the spend. We learned at one company that volumes were way down yet they maintained the same number of suppliers as they always had. This told us there was plenty of capacity and plenty of opportunity to take costs out.
Most companies also have no visibility into supplier labor costs, nor do most purchase on a per lb. vs. per piece basis. So we would argue that a strong sourcing strategy is likely a combination of unit level sourcing and category roll-up, applying sourcing rules to obtain total lowest costs.
Thanks again for taking the time to chime in. Perhaps this will be the start of a healthy and continued debate on the best sourcing tactics for these categories!
Thanks so much for chiming in with your thoughts. I appreciate the clarifications and corrections. I'd like to challenge you on your last point, however, around consolidation versus fragmentation for direct materials categories such as machinings. My experience with being involved in sourcing these exact direct materials categories at FreeMarkets proved that consolidation can be the right strategy. Maybe not always, but let's have it out on the subject. I've been tossing around some thoughts of late on spend mix and spend strategy within specific categories, and maybe there's a balance of “rationalize” vs. “float”. The key is figuring out which percentage of the spend is best suited to a leverage model versus a one-off "capacity search" type of purchase. You might be right here in some cases, but your suggestion is highly unorthodox. Which is why I think it warrants further debate and if possible, some economic proof.