By Jennifer Engel
Procurement’s technological landscape has evolved drastically over the past 10 years. Countless software solutions continue to emerge for supporting various stages of the strategic sourcing process, from supplier identification, to RFx, or eAuction, through analysis, business award, and contracting. Companies that engineer these sourcing suites are constantly improving and innovating their interfaces in an attempt to form the most user-friendly platform for suppliers and buyers alike. Even though the evolution has opened the door for perks such as live online bidding and ease of analysis, there are still common challenges that may outweigh the benefits of use. Before deciding whether or not to leverage eSourcing Software for a particular initiative, consider the following checklist to determine if you are making the most resource-effective choice
1. How many SKUs are involved in the tender?
The scope of the RFx should act as a major indicator of whether or not you should leverage eSourcing software. Projects that contain upwards of 500 Stock Keeping Units - not uncommon in the MRO and Packaging categories - typically yield greater success with the assistance of eSourcing Software. Participating suppliers can select parameters up-front to narrow the market basket based on their particular capabilities including geography or product category. Utilizing a system that only exposes suppliers to SKUs that are in their best interest to quote will minimize the risk of a supplier being overwhelmed and declining participation. This will also help reduce room for error upfront due to a lack of understanding. Additionally, most eSourcing Platforms allow the suppliers to download bidding templates in Excel and upload once complete. Suppliers who are more comfortable with traditional bidding methods will enjoy this comfort.
If the number of SKUs is relatively small, such as in a service or commodity-based category, suppliers may feel frustrated at the upfront registration and training required to access a simplified pricing matrix. In a category that includes between 50 and 499 SKUs, you should take time to assess the complexity before making a decision.
2. Who is your supply base?
You should evaluate all participating suppliers from multiple angles before deciding to initiate the online RFx process. First, are the suppliers within an industry and geography that typically fosters technologically savvy individuals? If the RFx is seeking national accounting telecom providers, chances are that the supplier’s representative will have no trouble at all navigating the software and understanding the benefits of an online RFP. If the RFX is seeking small, local PVF distributors, the amount of training and ongoing coaching through the RFx process may outweigh the resources saved from an online RFx.
Second, it is important to consider the value an award will bring to the participants. If the overall award is expected to make up a large portion of a supplier’s revenue, they will be more likely to invest in familiarizing themselves with a new software. Similarly, if this is an opportunity that will arise regularly, such as a quarterly commodity tender, suppliers will feel more willing to learn the platform in exchange for repeat business opportunities.
3. How standardized is the category’s pricing structure?
Product-based RFx events tend to yield more positive results when sourced through a standardized platform than services or hybrids with varying pricing models. For example, conducting an initiative for security services - which may have an hourly rate, a monthly rate, surcharges, or alternate pricing structures when combined with other products - may limit creative results from the supply base when sourced through a rigid template.
4. What is the balance of qualitative vs. quantitative weighting in the results?
most strategic categories, while pricing is a factor, service levels and total cost of ownership are equally important for determining strategic value. Utilization of eSourcing software can send the message to suppliers that cost is valued over strategic account management, ancillary value adds, and collaboration. In categories with complex service requirements, supplier business continuity plans, and other risk factors are valued equal to cost. Taking an offline approach to conduct more in-depth conversations with a smaller supply base may yield more positive, thoughtful responses from participants.
Learning a new technology is an investment for any supplier. Unless the benefits are clear and the opportunity outweighs the upfront resource investment, a lack of supplier engagement is always a risk. Events with large scopes and simple pricing structures are best suited for eSourcing Software. When conducting a complex, strategic event that relies on suppliers to propose customized, creative solutions, allowing suppliers to work in a more open, familiar format may yield better results. When there is uncertainty, open and honest communication with potential suppliers is a great way to both further understand the landscape of the category and determine the level of engagement that new or emerging technology will inspire.
Jennifer Engel is a Senior Supply Chain Project Analyst at Source One Management Services, responsible for executing strategic sourcing and process improvement initiatives for Fortune 1000 clients. Working directly with clients and their respective suppliers, Engel supports all stages of the strategic sourcing process, from data collection, through selecting and conducting go-to-market strategies, to negotiation and contracting and implementation.
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