Editor’s Note: Ardent Partners recently published a new sourcing-themed report, Beyond Price: Finding the Right Suppliers Using Sophisticated Sourcing Strategies, sponsored by EC Sourcing Group. If you would like to access the report, it is available for download here (registration required).
During the sourcing process, procurement teams need to consider a range of qualitative factors in order to find the best value for their sourcing dollars. Supplier market share, supplier performance, quality assurance and control, supplier production and delivery capabilities, and supplier ownership and leadership are all factors “beyond price” that sourcing teams should consider in addition to up-front costs. What’s more, adopting eSourcing solutions can facilitate the supplier evaluation process across these qualitative factors. Accordingly, this white paper (click to register and download) will discuss how Chief Procurement Officers (CPOs) and their procurement teams can use eSourcing to evaluate suppliers’ bids based on these factors, award new contracts, and be agile in today’s hyper-competitive business environment.
Using eSourcing for More than Basic Price Discovery
Seasoned sourcing pros know that there is often much more to awarding a contract than price. And yet, they often hear from business stakeholders that competitive sourcing is not the right strategy for their particular category, saying “this category is far too specialized and there are too many factors beyond price that must be considered in awarding the final contract. Sourcing just does not make sense here.” The reality is the exact opposite. A mature sourcing organization should be ready and able to incorporate non-price decision factors into the final evaluation and award of a supplier contract. They should also be able to weight qualitative and quantitative factors into a single evaluation. While this could be difficult in an offline sourcing process, the advances in eSourcing technologies over the past five years have made it much easier to incorporate varied and complex award criteria into a streamlined and automated sourcing process.
Going Beyond Price for the Greatest Value
Business stakeholders who offer excuses like the ones above are playing into the hands of the savvy and sophisticated sourcing teams who are prepared to run sourcing projects that incorporate qualitative factors into the decision making process. After all, sourcing is not about identifying the lowest price; sourcing is about identifying the greatest value. This report, available for download by clicking here, outlines many of the most frequently used non-price attributes and how their use can help sourcing teams find the best suppliers. Here’s why each one matters:
Supplier Market Share: Suppliers with a large market share usually hold some type of competitive advantage in the current market that has enabled them to become dominant. On the other hand, low market share may not disqualify a supplier from bidding, but it does indicate that other, larger, and more successful competitors exist.
Quality Assurance and Control: If quality is an important factor, then a supplier’s ability to consistently deliver it should be evaluated. Quality assurance is the ability of a supplier to prevent defects or poor delivery on a consistent basis. Sourcing teams will want to evaluate a supplier’s QA programs and understand how they are applied to production and delivery processes.
Supplier Performance: There are thousands of sources of information on supplier performance, and how it should be graded and then incorporated into future supplier negotiations. Sourcing teams can certainly use supplier performance evaluations to make smarter sourcing decisions, but they can also use this process to survey their supplier base and improve the quality of future supplier contracts.
Supplier Production and Delivery Capabilities: There may be other factors related to supplier production (and delivery) that can or should be considered when managing a sourcing project; factors like value-added or complimentary products and services, capacity, production processes (and technologies used), operational and technical capabilities, and geographical reach.
Supplier Ownership and leadership: Leadership often sets the tone or culture of an organization, but the history and ownership of a company can be just as important. A successful business unit within a large cash-generating conglomerate is more likely to survive the next downturn with little business continuity risk than a privately-held mid-sized operation.
Clearly, there are several more critical aspects of a supplier and its bid to consider than price. Supplier market share, performance, quality, production capabilities, and leadership are five major qualitative factors that practitioners need to consider in addition to price. Moreover, savvy sourcing and procurement leaders tend to embrace eSourcing solutions for holistic supplier evaluations; and they tend to get a jump on the competition in the process.