While e-sourcing technology is poised to impress in the spend-analysis category, it may be poised to disappoint in the realm of supply strategy. But condemning current technology for not being able to support the development of supply strategy might be analogous to condemning a computer program for not being able to tell you how to raise your kids. This is the inherent flaw of strategic e-sourcing. In order to develop a powerful strategy, a company must have a deep understanding of the market, supplier, technology, cost and other factors impacting the product or service it is attempting to source. Technology may allow you to capture some of this information, but, ultimately, a strategy can only be outlined by a purchasing and management team.
Companies cannot rely on technology to make all the decisions, but the good news is that, once a company's data is aggregated and properly analyzed and a supply strategy has been developed, e-sourcing tools like negotiation and bid analysis can make sourcing decisions much easier. This is where purchasing professionals begin to get really excited about e-sourcing's capabilities.
One of the biggest promises of e-sourcing is its ability to improve workflow efficiencies and substantially reduce cycle times through RFI/RFQ creation and bid analysis. According to AMR Research, cycle-time reductions have averaged in the range of 45 to 65 percent. But for Millennium Chemicals' Saunders, it wasn't the reduced cycle times that got him so excited about B2eMarkets' e-sourcing system, rather it was its ability to leverage private online offerings and consistent reporting for bid analysis and awarding of contracts.
When dealing with direct raw materials, where price is often an inflexible factor, it's rare that a buyer will look to non-incumbent suppliers for goods. You are usually better off staying with your incumbent suppliers, because change management always takes time and money, Saunders explains. But the B2eMarkets solution helped Saunders identify those areas where non-price variables might produce considerable cost reductions if RFQs were opened to non-incumbent suppliers via an online private offering.
Of course, it's not always easy to tell an incumbent supplier that you're going to begin taking bids for its contract. The incumbents tend to be surprised that we would ever want to take the relationship and do something like this to them, Saunders says. But, Saunders admits explaining it to them like this: If you participate in the private offering, you may lose our business. If you don't, you will lose our business.
In the end, Saunders says, incumbents almost always decide to participate because they realize that they have the immediate advantage of knowing the buyer company and its desires. But, when the bids begin rolling in, it is anyone's game. In many cases, private offerings allowed Millennium to discover many shipping, payment and delivery terms they were not aware that their incumbent suppliers offered. In one instance, says Saunders, Millennium's incumbent came in with a 34 percent cost reduction. My first thought was wow!', he says, But my second thought was, wait a second, why have we been buying from them for so long and thinking that we had a strategic sourcing partnership with them?'
Mixed feelings or not, the ROI is definitely there. If you do it right, he says, it can pay for itself in one event.
So far, e-sourcing technology has helped produce significant benefits, such as shortened sourcing cycle times, price reduction negotiations, reductions in time-to-market cycles and improved collaboration among suppliers. Nevertheless, e-sourcing solutions have a long way to go on the road to strategic e-sourcing.