Strategy report: E-sourcing tools

Strategy report: E-sourcing tools

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Procurement Leaders | Strategy report: E-sourcing tools

Contents

Executive summary

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Drivers of e-sourcing adoption

4

ERFX

5

E-auction software

6

E-sourcing provision

7

Vendor analysis

8

Demand

10

Pricing

11

Indexes

12

Managing costs

13

Future

14

Checklist

15

Porter's five forces

16

Suppliers

17

Further reading

18

About the research

19

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Procurement Leaders | Strategy report: E-sourcing tools

Executive summary

This report explores the technology used in the sourcing process and analyses existing provision ? both within the procurement function and the marketplace for e-sourcing tools.

It also provides a guide to effective strategies, vendor insights and purchasing checklists. As well as e-sourcing suites, the study examines specialised electronic request for x (ERFX) and e-auction tools.

The paper pairs primary research, largely undertaken as part of technology surveys conducted in 2014 and 2016, with membership and vendor discussions to provide both qualitative and quantitative insights. The majority of primary research in this study originates from three reports: Procurement IT systems and architecture (2014); Procurement and Technology: A vision of the future (2016), and Technology and procurement: Overcoming resistance to change (2016). Insights from these publications are supplemented by secondary sources.

? insight on the e-sourcing market and purchasing considerations.

The research suggests companies often use tools in different ways and with varying degrees of success. Procurement executives often failed to use their systems efficiently and supplier "burnout" underpinned important performance issues. The report includes methods of improving e-sourcing management and also highlights changes in the market.

Key findings

? E-sourcing tools are driving a shift towards the development of cross-functional teams within the sourcing process, changing the role of procurement executives as a result.

? P rocurement executives remain satisfied with e-sourcing tools, although resistance to ERFX technologies is hardening in a number of purchasing areas ? notably hotels.

E-sourcing tools is divided into three sections: ? optimal use e-sourcing of tools; ? Procurement Leaders' members' perspectives

and technology coverage; and

? T ransparency, capacity configuration and supplier forums are important means of ensuring effective implementation and costeffective usage.

DEFINITIONS USED IN THIS REPORT

Blind/sealed: Sellers are unable to see other bids in the e-auction.

ERFX: Request for information, proposals and quotes tools.

Ranked: Sellers are able to see competing bids and their respective rankings, but not bid specifics.

Reverse auction: Sellers compete for a buyer's custom. Typically, prices decrease as sellers underbid one another. Reverse auctioning was popularised in the e-sourcing space; primarily through supply management services firm FreeMarkets, which was founded in 1995.

Stakeholder: Any person, either internal or external, who may be identified as having an interest in a relationship or development.

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Procurement Leaders | Strategy report: E-sourcing tools

Drivers of e-sourcing adoption

Sourcing is central to the purchasing process. Procurement executives spend an average of 17% of their working day on sourcing management and negotiation. For a company with spend in excess of $3bn, this correlates to a $4.8m spend in wages (source: Procurement and technology: A vision of the future, 2016).

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Sourcing was historically a largely manual process that required significant resources and on average took longer than three months. This has changed, however, with the automation of key elements of the process. Procurement Leaders members believe 43% of the process is automated, but say further savings are achievable.

& Styling Five reasons for the increased use of e-sourcing tools:

PROCUREMENT EXECUTIVES' WORKLOAD (% OF TIME)

Sourcing management and negotiation Other

83

REALISED AND POTENTIAL TECHNOLOGY SAVINGS, COMPANIES WITH $3BN+ SPEND ($M)

Total automation savings Total technology-assisted savings Total potential savings

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TIME MANAGEMENT Procurement executives could save a huge

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COST REDUCTION CompHeEtAitDioINn,G HpEaRrEticularly from e-auction

audited as secure electronic records may be easily accessed.

comparison and the possibility of using saved events, could generate significant cost savings.

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E-auction tools could reduce the amount of time

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SECURITY Security is an important benefit of e-sourcing systems. Data may be restricted to the relevant

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required to run an effective sourcing process;

online auctions usually take one hour. ERFX tools

both standardise and simplify sourcing. This wFWooenuigt:hlPdtT: RhSeegeruilflpar to improve both the repeatability and sSLciianzeel:as1pb1apictlinitgy: 12o.1fpt any tender activity, which would

DATAhiSciTisOeRnAisGsiEn cienis voluptat. E-sourcing tools provide storage for vendor rdeastpaoLatienmancstt,euaussrirecat?senqIntdduitseisrisoannilutmeiisroaceuildsbniaqlgadmutakotenisannaotmwrrueelrppee,etdourgstfieemt.orSirentyroicsrphtirnicogvRidFeXs enhanced opportunities for collaboration,

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procurement executives and documents may be encrypted.

REDUCED ERROR RATES Self-bid entry from suppliers reduces human

lead to greater savings without substantially increasing buyers' workloads.

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Procurement Leaders | Strategy report: E-sourcing tools

ERFX tools

Barriers to effective ERFX use

EXECUTIVE ENDORSEMENT Implementing new systems may be difficult if senior members of staff are comfortable with existing processes.

SUPPLIER RESISTANCE The possibility that either a new ERFX system may either damage relationships with suppliers, or that suppliers will refuse to use any new system continues to underpin many issues with e-sourcing technology.

REDUCED SUPPLIER VETTING Being able to easily distribute RFX documents has led to fewer suppliers being vetted. This places increased time pressures on potential suppliers and often means that the sourcing process is not well targeted

SECURITY CONCERNS To allay fears about security, ERFX tools are sometimes hosted on-site. As a result, companies fail to take advantage of the benefits of cloud hosting, such as shorter deployment times. This is particularly prevalent in healthcare and banking.

Effective strategies for ERFX

Procurement Leaders analysed the methods employed by companies that most effectively operate ERFX tools. The following considerations provided the most important differentiation between advanced and establishing companies.

ENSURE INFORMATION TRANSPARENCY Provide detailed information that outlines the buying organisation's requirements, the awarding methodology and why the exercise is being undertaken. This enables potential suppliers to better assess their suitability and improve their credibilty with the buyer.

Ensure the request for proposal (RFP) process is transparent. If the organisation is likely to run either a second round of bidding or an e-auction it is important to make that information clear from the beginning. When a supplier has

been chosen, the buying organisation should communicate its decision to all who took part in the process in order to maintain its credibility. Providing feedback to suppliers could lead to them submitting stronger bids in future.

EFFECTIVE INTERNAL ASSESSMENT OF REQUIREMENTS An assessment methodology of the system functionalities should be used ? such as whether an request for information (RFI) or RFP will be required for a project ? will make the sourcing process more time- and resource-effective. Process commonality could be ensured by using a scoring system.

Capacity configuration is important and companies operating e-sourcing systems should analyse tool demand and usage. Response times

could be linked to usage and servers may become overloaded. On systems where this is an issue, a timeframe that outlines the estimated numbers of users or bidders should be constructed. System access and security should be central to tool uptake and internal discussions. Users with access to RFXs in progress should be limited to the sourcing organisation.

CENTRALISE SUPPLIER COMMUNICATION Promote supplier benefits to ensure uptake. E-sourcing providers will usually offer

documentation that is targeted at suppliers to highlight the benefits of the system.

Recognise the impact on existing suppliers when choosing or implementing an e-sourcing model ? a supplier forum is a potential way to discuss issues. An organisation should consider orientating its system to support the supplier's requirements. If an email status update on RFX responses is considered important, for instance, it would be worth adjusting the e-sourcing process to accommodate this.

CHALLENGE POINT

An methodical assessment of the system functionalities required will make the sourcing process more time-effective.

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