Editor’s Note: One of my favorite topics this past year has been eSourcing 2.0. This code/policy/doctrine was introduced in our articles, research, and presentations in 2010, but was developed over a decade of direct involvement developing, packaging, selling, using, and evaluating eSourcing solutions. We’ll start with these myths today and tomorrow, then proceed to making the case for eSourcing 2.0 -
eSourcing 2.0: Every negotiation that results in an executed contract should use an eSourcing solution.
eSourcing 2.0 makes the case that an eSourcing solution should be used by an enterprise to capture the details of every negotiation that results in an executed contract. eSourcing 2.0 will be a major theme on CPO Rising.
I believe that this code is simple and straightforward and that adopting an eSourcing 2.0 mentality in 2010 will fast-track any procurement transformation and have the most significant, broad-based, and long-lasting benefits of almost any strategy that could be enacted this year. Nonetheless, the inertia against change and technology and an underlying professional arrogance that defends the status quo (i.e. little-to-no use of eSourcing) have combined with a set of deeply-ingrained eSourcing myths to make this practical maxim all but impractical. I’ll start this year’s discussion by deconstructing 5 common eSourcing myths in the hope that eSourcing teams can drive greater adoption immediately and set the groundwork for eSourcing 2.0.
1. eSourcing (specifically, eAuctions) is not appropriate to use (implication: rude) with trading partners or with strategic suppliers (or any suppliers, for that matter!). Since when did sourcing and procurement pros start taking classes at charm school? Miss Manners may be able to tell you how to set one, but she does not get a seat at the negotiating table. An eAuction, which brings competitive bidders into an arena, generally with full visibility and a singular focus on price, is but one type of negotiation or set of business rules that can be modeled in an eSourcing tool. There are many categories and situations where true “auction-style” bidding is fair and will yield the best results and there are categories where “auction-style” bidding is not preferred. eSourcing can fully support both types of categories. Let’s be honest: in the offline bid process, it is difficult, if not impossible, to (a) communicate consistent information to all bidders, at all times and (b) provide a final opportunity for all bidders to improve their bids and knowingly win the business – I think that is rude behavior.
2. eSourcing should only be used when price is the single consideration. eSourcing solutions are built to support RFIs/RFPs/RFQs that are about more than price. The business rules of an eSourcing event (including the level of bidder transparency, what and how bid information is captured, how bid information is evaluated, and how final contracts are awarded) can and should vary based upon any number of factors. eSourcing tools capture and aggregate bid information in a centralized and collaborative platform that can streamline team evaluations. And the tools can certainly be used to qualitatively and/or quantitatively evaluate bids or some combination of the two.
3. Certain (i.e. my) categories are too specialized/complex for eSourcing. I love this one. It is NIMBY-like (i.e. hypocritical) behavior at its finest: “Sure, we need to source more, be more efficient, find more savings, negotiate better, spend more time developing deeper internal and supplier relationships, etc…. just not in my area or with my categories.” This argument is code for: “I could not possibly do anything to improve my performance. I don’t need to change/adapt/advance.” Do the categories have a set of definable requirements? Is there an evaluation of how suppliers meet those requirements planned? Is improvement possible for that person? Answers: of course – NEXT!
4. eSourcing does not work when there are not enough suppliers to bid competitively. In my experience, defining requirements and supplier discovery are among the weakest sourcing sub-process areas for large sourcing teams. But yes, it is possible that there are not enough qualified suppliers to bid in a real-time competition (Again, event timing and bidder visibility are just business rules for the negotiation). Many eSourcing solutions can capture the full contents of a back-and-forth negotiation between one buyer and a single supplier, or one buyer and several suppliers in parallel. When it comes time to develop and execute a contract, would you rather have: (a) a comprehensive online audit trail of the full negotiation (b) some fragmented email trail (c) a versioned document sitting on someone’s hard drive or (d) handwritten notes from several conversations as your reference document?
5. eSourcing is not needed because we already have the “highest value” supplier. This can certainly be true, but I doubt it. It is certainly not true for every category up for contract renewal this year. Pricing, quality, innovation and supply markets in general continue to shift at an ever-increasing pace; so, if the category hasn’t been sourced recently, there’s a good chance that the market has moved. Sometimes, we don’t know what we don’t know. I think there are two responses here: (1) set up a quick eRFx that captures indicative pricing from a large list of suppliers in the space and see if the argument is valid or (2) agree with the basic premise that you are working with the best supplier and use the eSourcing tool to present the final requirements and capture the entirety of the supplier negotiation. When this category manager eventually takes a new position, it would be great if all of the team’s category knowledge doesn’t leave with him/her.