After two years leading the charge for e-sourcing, Niul Burton and Sarah Pfaff recently stepped down from their positions at solution provider eBreviate, where Burton had been president and Pfaff, executive vice president. The two had come out of consulting firm A.T. Kearney in 1999 to found eBreviate, which is now headed, on an interim basis, by Tom Slaight, the solution provider's third co-founder. iSource sat down with Burton and Pfaff this week to discuss the current and future evolution of electronic sourcing and e-sourcing solutions. In the first of this two-part series, Burton and Pfaff talk about why the adoption of electronic sourcing has been slower than they had expected.
iSource: What have you learned about e-sourcing over the past couple years
Burton: When we started a year-and-a-half ago, our expectation of the marketplace was that strategic sourcing was a relatively well-understood process, that large corporations had effectively adopted strategic sourcing approaches and were gaining benefits, and that they would be in a position to take the enabling technologies and embed them relatively quickly into what at that point were manual processes.
But in practice we discovered that very few corporations have got their procurement and strategic procurement activity to any level of sophistication. There is still a lot of relatively unsophisticated procurement-oriented, transaction-oriented buying taking place, even amongst large corporations. e-Sourcing as an enabling set of tools and technologies to deliver breakthrough business results is being used successfully in the minority of places.
iSource: Is that because companies have not gotten their strategic sourcing initiatives together in general?
Burton: I think it is something of a reflection of that. In a lot of cases, consulting organizations did strategic sourcing. And sometimes, despite their good intentions and efforts, those processes never really transferred over to the client organization.
And executive leadership in large organizations has never really understood strategic procurement. I think the fact that so many CEOs signed up their companies for exchanges last year is an indication that the CEOs didn't really understand strategic procurement within their organizations. They've been trying to make those exchanges work, and they've discovered that procurement is a bit more complex than had been previously appreciated and that, for the most part, companies are not particularly sophisticated about how they go about it.
Pfaff: There's a lack of understanding about strategic procurement, coupled with massive confusion because of all the solutions claiming to play in this e-sourcing space. It's almost overload. So we ended up with a much slower adoption rate than I would have expected.
iSource: Do you view supplier pushback as a factor in the slow adoption of e-sourcing?
Pfaff: Everyone makes the suppliers the scapegoat for adoption difficulties. But in general, it's not supplier resistance that's causing the problem; it's the buyer's lack of readiness for adoption that is making it slower.
Burton: I would agree with that. It's easy to say that the supplier is the block and that the suppliers see this as just another way to beat them up. But in eBreviate's case, there were very few examples where, with the right kind of education, training and discussion, the suppliers wouldn't participate in the event. [Suppliers] actually get two benefits. They get data points that enable them to understand how they are competing, where they are competitive and not competitive. And secondly, they are able to compete for business in a much more cost-effective manner. Typically, it's the suppliers who think they are going to lose that are most resistant to using this approach.
iSource: Has the slowing economy played a role in the adoption rate?
Burton: I'm not sure if it's attributable to the slowing economy in general or what we call the "hangover" from other procurement investments. A number of large companies have put money into exchanges, and they are feeling like they haven't gotten payback. They are cautious about investing in e-sourcing.
And in many respects, the e-sourcing offering is attractive right now because it allows you to drive costs out and to do it at a time when there is overcapacity in certain supply markets. It's also a good time to go back and renegotiate contracts.
Pfaff: I also think a lot of companies buy technology and just try to implement it and make it work. They don't want to take the time per se to figure out how to change their business processes to best use the technology. A true e-sourcing platform is considerably broader and considerably more complicated than someone sitting back and pushing a button and doing your job the way that you've always done it.
iSource: Have you seen misconceptions about the potential for e-sourcing?
Burton: Selling to a procurement organization is kind of interesting. It's a challenge, first because the purchasing people always want to make sure that they're doing the best deal, and secondly, you're selling something that says they can do a better job. Sometimes challenging someone's ability to negotiate is a little like saying they're not a very good driver. Everybody thinks they're a good driver, although you know when you go out of the road that there are plenty of people that aren't. It's a little bit the same with negotiating when you're suggesting that they could negotiate a better deal than they're doing today.
So at the buyer level, there is also resistance to changing their processes and practices. It really depends on the level of enlightenment and sophistication of the senior purchasing executives in terms of their recognition of the opportunities to do things dramatically differently.
Pfaff: And it's not just about negotiations. One of the myths is that somehow e-sourcing equals negotiation. Frankly, e-sourcing is way more than just the negotiations aspect of procurement. And that is something that 90 percent of the world doesn't get. As a result, the other myth is the belief that e-sourcing only applies to a little bit of what you buy.
In part two of this interview, which will be posted Monday, Burton and Pfaff look to the future of e-sourcing.
