10 for 2010: eSourcing Myths (and How to Deconstruct Them)

eSourcing Manifesto eSourcing 2.0: Every negotiation that results in an executed contract should use an eSourcing solution.

The eSourcing manifesto code that I introduced in 2009 via research[i] and other presentations builds upon more than a decade of direct involvement developing, packaging, selling, using, and evaluating eSourcing solutions. 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 in 2010.

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 10 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.
6. eSourcing is not needed because the incumbent supplier has already agreed to the targeted reduction. In general, “pre-emptive” bids by incumbents are designed to keep the business and avoid negotiations that approach ‘market’ pricing. But, if the incumbent bid is low enough to satisfy management and bypass an eSourcing event, enter the final (unambiguous) requirements into the eSourcing tool and have the incumbent submit its (unambiguous) bid. This introduces eSourcing to the incumbent for future/other categories and can speed up the contracting process.
7. eSourcing technology does not support what we want/need to do. eSourcing applications are the most powerful of all supply management technologies. They are robust (complex at times) and have an ability to model most offline sourcing practices. (Sidebar: progressive CPOs work aggressively to simplify all of their processes). If the current sourcing process does not map to an eSourcing solution, call your provider’s product support team and its consultants or product specialists that spend time in the field to validate that fact and ask for proposed workaround. A probable answer may be found in tweaking the solution or in tweaking the process.
8. eSourcing is not needed because it just replicates the one of top skills of the procurement department/staff: negotiation. eSourcing can help discover price in a very fair, fast, and effective way but it can also provide value in many other areas. It is a communication platform that fosters collaboration. It is a knowledge repository that captures key category, supplier, process, and bid information. It is a process enabler. The efficiencies that eSourcing can bring to the process can allow for more time to be invested by a project team in the definition of requirements, identification of suppliers, and other areas. It can also enable the team to tackle more overall projects. In extreme cases, certain “old school” negotiators could be given a “free pass” and only use the tool to input final contract information (after the offline negotiation has been completed). I don’t support this “workaround” for use in many cases; but, in the bigger picture, it ensures that the eSourcing tool is utilized and that the department has some level of visibility into the negotiations.
9. eSourcing applications are too complex. The power and robust capabilities of an eSourcing tool can make it difficult for the occasional user to master all of the tool’s facets (It is incumbent upon solution providers to make their eSourcing products easier to use). By mandating usage (via an eSourcing 2.0 doctrine), users will now have a vested interest in learning how to use the tool well. eSourcing templates (and access to them) can be structured to simplify the eRFx creation process; centralized support teams/specialists/power users can help too. Remember when Lotus123 and Lotus Notes were impractical and too complex? Imagine life without Excel and email. My point is: things change, technologies improve; you don’t want to become this guy.
10. eSourcing will fail because suppliers will refuse to participate – Some suppliers may refuse to participate as a matter of policy or because they have been ‘burned’ in the past. An eSourcing program that communicates information clearly and fairly, that follows the sourcing and award process that it lays out, and is responsive to feedback throughout and after the process will win the attention and engagement of the vast majority of its suppliers. Suppliers can reduce their costs in an efficient process and can gain critical market information. An example of the value of bid information to participating suppliers: In the early days of eSourcing/eAuctions, I once manned the bidder’s helm with Aman Bawa, Mark Kiefer, and Ben Pearce as we represented Commerce One’s Auction Services team during America West’s online auction for an eAuctions license. We lost. The winning bidder won with a bid of $0 for the license which was clearly not a good sign for providers in the space. Our team took immediate notice and realized that we needed to broaden our solution footprint and expand our services to compete in areas beyond price. We had already started some of this work, but losing that bid to a competitor willing to give away the base product told us we needed to move and move fast. As it turned out, the winning bidder (Material Net) and many other companies in the space were gone within a year. Commerce One lasted a few years longer, but only a few – the reasons behind its demise were more complex, but beside the point. I hope think you get my point.

I always want your feedback and comments and this article is no different. Do these myths have traction within your enterprise? Do other myths exist? What type of pushback do you get? What are the things holding back your eSourcing program? Maybe you disagree with the concept of eSourcing 2.0 or maybe you are only interested in “busting” more technology myths……

What do you think?

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[i] Search “CPO’s Agenda 2009: Smart Strategies for Tough Times” and you will be able to find links to free copies of this report.

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