Global Enabled Supply Chain Series: Strategic e-Sourcing

With analysts casting new e-commerce terms into the limelight every week, those terms can be easily confused. But make no mistake, there is a big difference between e-sourcing and strategic e-sourcing. Here's how the market is trying to close that gap...


[From iSource Business, October 2001] A purchasing professional from five years ago might find it impossible to believe that Jason Saunders, global purchasing manager for Millennium Inorganic Chemicals, the second largest producer of titanium dioxide in the United States, does not look first at the price tag when selecting a supplier for Millennium's raw materials. In fact, many of today's purchasing professionals wouldn't believe it either.


Titanium dioxide, a white pigment used in paints, plastics and papers, can only be manufactured with the most specific kinds of chemicals. And as Saunders well knows, the price of chemicals is largely dependent on market conditions, making it the most inflexible item by which to evaluate suppliers. But today, Saunders is using one of the many emerging strategic e-sourcing tools on the market: B2eMarkets' B2eSourcing solution. According to Saunders, B2eMarkets' system allows Millennium to assess the value of a supplier quickly and effectively based on numerous critical terms. B2eMarkets forces you to do your homework, he explains. You have to look at the other options of an agreement outside of price, such as delivery terms, payment terms and different shipping practices. Especially when dealing with raw materials and chemicals, it's the additional decision factors that really determine where the cost savings are.


A Darwinian Theory


The ability to evaluate suppliers based on multiple non-price decision factors is indeed one of the hallmarks of strategic e-sourcing. But there are a host of other benefits that these tools facilitate, depending on the definition of strategic e-sourcing to which a technology enabler adheres. That's the catch. In today's market, it appears that almost every enabler defines strategic e-sourcing, and the functionalities it provides to leverage the process, differently.


In order to understand the current confusion surrounding strategic e-sourcing, it's important to remember that online sourcing and procurement have been continuously evolving over the past few years, and strategic e-sourcing simply represents the latest stage of this evolution. As a result, the solution providers, analysts and practitioners of today are struggling to define the blurring lines between e-procurement, e-sourcing and strategic e-sourcing.


According to a report by the Aberdeen Group, the road to strategic e-sourcing is marked by three primary waves of technology. At the onset of the B2B feeding frenzy a few years back, e-procurement was all the rage, allowing companies to automate the tactical processes and workflow associated with purchasing. Purchasing managers were finally able to dig their way out of massive paper trails, and the procurement process made giant, critical strides in efficiency. However, this initial round of e-procurement technology was used almost exclusively for purchases that were already on contract with a set group of suppliers.


Then came reverse auctions and e-marketplaces, which offered users more dynamic trading methods. Both facilitated buyer-seller negotiations in different trading environments, but both also continued to rely on product price as the primary factor in negotiations. It soon became apparent to the enablers and practitioners of these e-procurement tools that, while procurement was moving quickly toward a more ideal, streamlined world, it was the sourcing cycle that was the most time-consuming element of the purchasing process. In fact, it has been estimated that sourcing a new production material, part, assembly or service takes an average of 3.3 to 4.2 months. The typical sourcing cycle, especially for procuring direct goods, can be so lengthy because of the mission-critical nature of the decisions made during this process.


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