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E-Sourcing: Remove the Institutional Roadblocks that Limit Value

It’s been a decade or so since e-sourcing solutions and related services broke onto the scene. The results of using these strategies have been compelling. The Aberdeen Group reports that companies that adopt e-sourcing practices benefit from many advantages over companies that don’t, including:

  • A 57 percent lower rate of savings leakage.
  • A 21 percent higher rate of procurement contract compliance.
  • A nearly 20 percent higher rate of spend under management

With that kind of documented evidence of the return on investment (ROI), it’s hard to believe that any organization wouldn’t be using e-sourcing for any and all procurement events. But here’s a dirty little secret: While 40 percent of small to mid-size businesses and 45 percent of large organizations have deployed e-sourcing, widespread use remains elusive. In fact, in 2012, Aberdeen Research found that, despite the significant quantifiable results, e-sourcing is employed only 57 percent of the time by best-in-class companies and only 41 percent by all others.

There are many reasons that maximizing adoption and optimizing the value of e-sourcing can be challenging. In most supply organizations, about 15 percent of users are early adopters. Bringing the rest onboard takes more effort. The biggest reason? Organizational change is hard. In “Exploring Strategic Change” (Prentice Hall, 2008), the authors reported that the failure rate of organizational change efforts may be as a high as 90 percent.

And it may be especially hard for supply management organizations: A 2012 study by the Proxima Group and Nelson Hall found that 98 percent of CFOs believe business engagement and change management are critical capabilities for procurement, while 60 percent of these same CFOs expressed dissatisfaction with procurement in these areas.

Five Organizational Obstacles to Driving Greater Business Value from e-Sourcing

  1. Skepticism about vendor promises around double-digit savings potential.
  2. Fear that long-standing and carefully cultivated relationships with suppliers may suffer.
  3. Belief that skills and institutional knowledge cannot possibly be replaced by software and outside consultants.
  4. Sourcing viewed as tactical with little tie to greater business objectives.
  5. Fewer and fewer supply management staff and resources available to invest in more than the day-to-day operations.

Now, though, in today’s highly competitive business environment, visionary supply management leaders see a bright horizon in which e-sourcing can make a greater contribution to the top line. Some examples include:

  1. The ability to collect information on how suppliers are innovating with new or existing products.
  2. Averting supply disruptions with alternative supplier prices and contract terms immediately available when disaster strikes a primary supplier.
  3. Lowering internal costs and cultivating customer loyalty by protecting them from product price inflation through aggregated purchasing.

Overcoming obstacles can be done. There are simple—and effective—changes that can be made to move toward capturing immense business value from e-sourcing.

#1 Enlist the C-Suite to Champion the Cause

Having CEOs, CFOs and CPOs speak to the business value that can be gained from e-sourcing—in cold, hard and compelling financial language—is a powerful antidote to reluctant buyers’ perceptions.

#2 Combine Mandates with Incentives

Like any group of people, buyers are driven by different things. The key is to make it easy for them to understand what’s at stake, professionally and personally. Tie compensation and performance goals, in part, to e-sourcing, and clearly articulate and enforce e-sourcing policies to ensure that everyone on the team understands what is at stake.

Sweeten the mandates at the same time, with incentives that reward buyers for reaching particular goals, e.g. sourcing the highest amount of spend. Success—and public recognition of achievement—can be a huge motivator.

#3 Apply Lessons Learned

Each experience can reveal a new opportunity or maybe a “gotcha” to be avoided. Applying lessons learned to future events reduces mistakes, streamlines the time required to achieve results and ensures that the practice continuously improves.

#4 Support the Bench with Experts

For talent- and resource-strapped organizations, bringing in outside expertise can be a win-win. The organization gets maximum value from e-sourcing and the team works side-by-side with e-sourcing service providers to accelerate their own learning curve.

On a Path to Driving More Value from E-Sourcing

Building supply networks that contribute to overall business value and profitability—while keeping an eagle eye on costs—differentiate world-class supply management organizations from the rest. Getting the balance just right requires a transformative shift in how organizations as a whole, and supply management teams especially, leverage e-sourcing.

The critical first step is to identify the institutional roadblocks preventing e-sourcing from moving beyond a tactical effort to a strategic process and begin tearing those obstacles down. Once e-sourcing takes its rightful place as an essential supply management strategy, the potential for value delivered is limitless.

Steve Whiteman is the chairman and CEO at Intesource. Intesource’s latest report, “Overcoming Internal Roadblocks to Sourcing Transformation,” is available now for download.

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