So yes, certain tools in the market are getting better. But systems that help users evaluate and rank suppliers on specific criterion other than price, then help a user design a sourcing strategy based on these results now that's another story. There are perhaps a handful of systems available that can do that.
Some of these systems such as ProcureMind are built around a question and answer type of format designed to quantify a company's sourcing goals and priorities. It may ask if R&D is important, for example. If so, then a supplier that rates high in R&D ability is given top ranking by the system. Then, the system would help a user run through all the possible sourcing and business allocation scenarios: i.e. supplier A needs to get X amount of business because he is strong in R&D even though he may be more costly, while supplier B will manufacture certain components because her facilities are ISO 9000 certified and quality control is important to the company. Supplier C, meanwhile, is awarded the bulk of business because it is the lowest-cost provider. Eventually a sourcing strategy is designed to meet the company's R&D and quality control goals, while at the lowest possible cost.
Another example is Emptoris' ePASS, which programs buyer business rules for a particular user. Let's say a company wants to give supplier A $500,000 in business in order to fulfill a yearly contract with them, says Avner Schneur, president and CEO of Emptoris, a Burlington, Mass.-based provider of the ePASS system. Or a company wants supplier B to win $200,000 worth of business, but only in a particular category. Such examples, Schneur says, are a reflection of the way people really do strategic sourcing.
But even the newest of e-procurement products do not meet the needs of some companies. American Express, recently under Joseph Yacura's leadership, wound up developing its own e-sourcing system to handle aspects of supply line management not covered by any of the existing e-procurement systems. Our view was that most of the technology out there today is only handling a portion of the supply line activity. Statement of work development, determining life cycle cost models, supplier qualification all that has to be in place before you place an order, he says. These aspects of supply line management do not exist in most of today's e-procurement systems. The typical range of capability of the current systems can be described as purchase to pay.'
The good news is that the market does appear to be moving in this direction. Certainly Ariba appears to realize the need for such functionality; hence its recent acquisition of SupplierMarket.com, a provider of online collaborative sourcing technologies. As things stand right now, e-procurement doesn't do enough for strategic sourcing, Priest says. But I do think with the next generation of e-procurement systems we will begin to see better sourcing capabilities including supplier selection and the RFP process.
For procurement professionals still concocting these formulas by hand, it can't happen soon enough.
The Heat Is OnNow more than ever before, the pressure is on procurement to add value to an organization, says Daniel Mahler, an associate with A.T. Kearney. Top management expects it, he says. This heightened sense of urgency is due in part to a new awareness of the value that a tight procurement operation can add to a company's bottom line. Indeed an A.T. Kearney study completed late last year shows that companies that are leaders in procurement and strategic sourcing strategies are usually rewarded with higher growth and revenue figures.