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"This 'tail spend' startup saves the MBTA $100K per month"

Adapted from Kelly J. O'Brien at Boston Business Journal

Each year, the MBTA makes about 15,000 purchases of orders worth less than $50,000 each. Policy rules dictate that for many of those purchases — for things like spray paint, steering shafts and cylinder breaks — the organization must collect at least two competing bids from vendors before finalizing an order.

A year ago, soliciting those bids required someone in the MBTA procurement division to pull out an old phone book or search Google for relevant vendors, send emails or call the companies, and file away the resulting bids in a cabinet where they were unlikely to be looked at again. Now, thanks to a local software startup called FairMarkIT, the entire bidding process is done automatically and publicly, with each bid stored for future reference.

The system has saved the MBTA an average of 30 percent on its purchases by allowing it to collect more bids and have better access to pricing data, according to the agency’s chief transformation officer, Nick Easley. That translates to more than $100,000 in monthly savings, according to a case study FairMarkIT published about its work with the MBTA.

“At the end of the day what it does is increase our ability to get quotes more efficiently,” Easley said. “That gives us more time to focus on the stuff we should have been focusing on all along.”

The change was made possible by the MBTA’s use of FairMarkIT's software, which helps organizations reduce their procurement “tail spend” — a term for all the money that companies spend on relatively inexpensive purchases, such as staplers and IT software.

FairMarkIT was founded in February 2017 by a pair of former sales directors at Boston-based enterprise software firm Turbonomic Inc. The MBTA was the startup’s first customer, though it now has six customers, including Yeti Coolers and vision care health insurance company VSP Global.

In May, the startup raised its first round of funding from semi-public venture capital firm MassVentures, as well as NewFund Capital, NewStack Ventures, VT Technology Ventures, and several angel investors. The company declined to say how much money it raised, but a document filed with the U.S. Securities and Exchange Commission indicated FairMarkIT raised just under $900,000.

Tarek Alaruri, co-founder and chief operating officer, said he and CEO Kevin Frechette founded FairMarkIT after realizing that companies had no real way to compare prices when buying supplies, equipment or software. Many would default to the same supplier over and over again, rather than spending the time to research other options.

FairMarkIT, which automates outreach emails and gathers quotes from vendors, is focused on “tail spend” because small purchases typically make up a large percentage of an organizations total transaction volume, but a small fraction of their total spending. The result, according to Alaruri, is that very few companies have taken the time to optimize such spending, or even to bother keeping track of it.

“Organizations have no idea what they pay,” Alaruri said. “For some of these companies, it’s a very large amount of money that just typically gets ignored and not tracked, and there’s no process around it.”

Easley, who sees the adoption of FairMarkIT as one step in his broader mission to make the MBTA more efficient with new technology, said the improved transparency and cost savings of the software go hand-in-hand.

“I paid for the system in the first month,” Easley said. "Just with that functionality of making a public platform that stores how much people are quoting or bidding on my system is worth its weight in gold.”

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