FedBid – Saving $ for Government and Transforming Procurement in Detroit’s Public Schools (Part 1)

FedBid, a sourcing and marketplace provider, has grown the federal spend they touch to over $2 billion in 2012, a sizable pot of gold. Perhaps even more interesting, they're a supplier diversity success story – as the vast bulk (over 75%) of the spend winds up being awarded to SMWBEs (Small, Minority- or Woman-owned Business Enterprises). Despite their name, FedBid is now helping stir the procurement waters in the Detroit Public School system (will Chicago be next?) and also heading into other state, local, and even commercial sector engagements. In 2011, the Revolution Growth fund invested in FedBid, which has helped them fuel their expansion. But before we go further into that, here's an introductory background on the company:

Marketplace without apologies – FedBid offers a managed online marketplace with the required technology and services to enable sourcing outcomes. They typically work with buyers on RFQs for relatively simple indirect goods and services. "We do laptops and lab services really well – not complex, large spends," they told Spend Matters. Sweet spot spends lie in the [$3K to $150K] range – larger spends are typical strategic sourcing targets and smaller ones are covered by p-cards. They view themselves as complementary to firms like Ariba.

Tail spend that others ignore – Stated another way, FedBid essentially delivers spot buying capabilities aimed at tail spend management. This portion of unmanaged spend amounts to around 10-20% of private and public organization spend. It may not be as attractive as big, direct, and indirect or services spend opportunities that would pass the 80/20 rule sourcing priority test. But in FedBid's experience, serving an underserved area that many organizations have historically opted to deprioritize internally holds a steady stream of opportunities. FedBid claims an average of over 10% in savings in the spends they touch.

Partners are core – FedBid has formed relationships with a solid number (8) of mid-tier BPOs and additional software providers, so they are not alone in the assessment that they have found an area of opportunity. Partners include Coupa, CGI (strong with Feds) and Experian (to provide immediate credit reports).

Competition is limited – Surprisingly, FedBid does not compete with SciQuest (a strong player in higher ed. and now state sectors). Rather, they coexist well with this company and many others, and view themselves as a low risk complement. That said, as with all technology solution providers, the main competitor is "do nothing" – conduct business as usual. As a reference, Perfect Commerce has a similar managed services approach which they have successfully sold into a range of organizations for spot buying over the years (and BPOs like Procurian also offer spot buying services for clients, especially for capital expenditure).

Where's the money? FedBid makes their money only from implemented deals, an important nuance. They tack on a certain percentage to the winning bids where buyers only see the total amount, and suppliers are paid the full amount. Then, post-award, FedBid invoices the supplier for their portion. Unlike some other solution providers, FedBid doesn't touch the stream of funds themselves. This might seem open to fraud, and FedBid's account managers admit to monitoring that buyers and suppliers are honest about their transactions.

No commodities please. Spend Matters observes that FedBid's category-agnostic percentage-based fee – although it is not assessed at the portion of a given spend that exceeds $1MM – still prevents thin margin, commodity type categories from working in this model. This is the same problem that Ariba and anyone else has with percentage-based transaction fees for both supplier discovery and PO/e-invoicing type networks.

What does the solution look like? A streamlined event (called "buy" in the FedBid solution) build with review, and supplier availability searches and more sophisticated customer support (it reminds me of what we provided at Procuri – a firm I worked for until the Ariba acquisition), yet with a slicker, more automated process, requiring less high-touch support. This approach seems a sustainable compromise. It is always a tricky balancing act to get support tuned to the right level – self-service is ideal, but often not realistic until change management has taken hold. On that note, one differentiator that FedBid provides is change management support to implement the negotiated savings, which is obviously also in FedBid's best interest. No implementation – no pay!

Stay with us as we continue with details on FedBid's activities with Detroit Public Schools in Part 2.

- Thomas Kase

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