[**Over the next few weeks, we’ll be running “best of” Magnus Mondays posts, reprising some of the most popular topics of the series. Magnus returns with new content in August.]
When I first started reading CPO Rising more than a decade ago, I remember Ardent’s founder and chief research officer, Andrew Bartolini, introducing the concept of eSourcing 2.0, which is the strategy that if a supplier negotiation was worthy of a contract, the negotiation with that suppler should be captured electronically — and ideally — with an eSourcing tool.
Today, I updated that theme with my take on the importance of eSourcing usage/adoption by sourcing and procurement teams.
eSourcing solutions have been around for nearly 30 years, with their value proven repeatedly over that time. Despite delivering both monetary savings as well as productivity improvements, adoption is still low. Ardent Partners’ 2023 State of Procurement Report shows that only 43% of companies have invested in eSourcing.
Solution adoption can be viewed from two different (but related) perspectives: 1) the percentage of organizations that have invested in the tool and 2) how much the tools are used by organizations that invested. This article will focus on the latter adoption perspective, how to drive usage of eSourcing. We will discuss some of the issues behind the low eSourcing usage and look at recommendations on how adoption can be improved.
Multiple Reasons for Low Adoption
What is holding organizations back? There are several reasons why eSourcing adoption remains low.
Lack of eSourcing knowledge. While there are easy-to-use eSourcing solutions in the market (e.g., solution providers like MarketDojo or Workday, with its ScoutRFP acquisition, come to mind) that seasoned sourcing pros can use instantly for standard RFPs, many in procurement lack the skills to go beyond basic eSourcing usage. To gain the full value of more advanced capabilities like reverse auctions and/or sourcing optimization, an eSourcing event must be designed and set up correctly. Despite their daily focus, many category and supplier managers are more concerned with day-to-day activities and strategic initiatives than becoming eSourcing experts and developing/maintaining the requisite skills. In most cases, there are too few sourcing events to develop expert-level knowledge of eSourcing tools. Without more advanced eSourcing skills, the tools simply function as a means to capture basic bid information.
eSourcing solution limitations. It is fair to say that standard eSourcing functionality is commoditized today. The problem is that procurement is complex and standard functionality is not always enough. Different types of spend and sourcing events may require a specific type of eAuction negotiation. Similarly, a sourcing optimization tool or advanced automated sourcing approaches may be needed. If the specific features are not accessible by the user (meaning they exist, but the user doesn’t understand how to use them) or if the features are not available in the eSourcing tool, users will see this as an easy excuse not to use the solution.
Limited CPO commitment. Often, eSourcing solutions are implemented and the procurement organization is instructed to use it “as much as possible.” That ambiguous direction is problematic because the definition of “as much as possible” can vary widely within a sourcing team. These teams then rarely track and report eSourcing activity, much less set aggressive throughput goals for both individuals and teams. Combined with the limitations of any single eSourcing solution, it is yet another excuse to keep using email and Excel.
Frequent reorganizations and management changes. Ardent Partners’ research has shown that the average tenure of a CPO is between four and five years. The revolving door at the top of the organization, combined with the multitude of different procurement initiatives and technology deployments, means that few eSourcing programs remain consistently at or near the top of the procurement leadership team’s agenda year over year.
Recommendations for Adoption
So how should organizations address these issues to ensure that eSourcing, and all the benefits that come with it, truly get embedded in the organization?
Create a Center of Excellence (CoE) for eSourcing. Using an eSourcing tool can be daunting for the occasional user (once or twice a year), so a centralize team of eSourcing experts like a CoE for eSourcing (or a centralized eSourcing team) makes it much easier to reach a critical mass where the necessary general and specific eSourcing skills can be developed, maintained, and used. The CoE staff should advise category managers (or the equivalent) during sourcing events on how to structure their RFPs (what type of negotiation should be used and other business rules) and help with the event’s overall design and execution to maximize the value. For example, these experts should know when and how to use reverse auctions (and which negotiation type is optimal). As a side note, eAuctions are an extremely powerful tool in the eSourcing toolbox when used in a suitable business context. Depending on the complexity of your sourcing categories, the CoE staff should be active users of sourcing optimization. This remains one of the most underutilized tools for procurement in the market.
Make sure you have the right collection of sourcing tools. Procurement is complex where different categories of spend are sourced in different ways. Sourcing organizations should understand their spend and use the right tools for sourcing various categories efficiently. Some organizations may only require a single sourcing solution, while other enterprises must leverage several integrated solutions. Currently, there are no solutions that support every sourcing area, such as:
- Autonomous sourcing capabilities for low-value or repetitive needs
- Easy to use, standard eSourcing
- Direct sourcing, including support for should-cost models and bill of materials (BoM)
- All variants of auctions (e.g., forward and reverse versions of standard auctions, Japanese auctions, Dutch auctions, Vickrey auctions, and the like)
- True sourcing optimization.
Quantify the benefits. Measure and quantify the benefits of the eSourcing program. If a new CPO comes in or a re-organization is initiated, it will be more difficult to cancel an eSourcing program that shows contributed savings and efficiencies gained. While there are examples where a successful eSourcing program was canceled during a leadership transition or shift in company priorities, having quantifiable results can help save a program.
Make usage mandatory. Change is hard. Accepting excuses not to use a new solution will always lead to its underutilization. If the right tools and support are available, there are no excuses not to use eSourcing. And over time, the solutions result in data, templates, and expertise that will further drive savings and efficiencies. Make utilizing eSourcing mandatory and a key performance metric for sourcing professionals that is tied to their bonus. If you incentivize usage, they will come!
Ardent Partners research has shown consistently through the years that eSourcing tools save significant time and drive greater savings per event than offline negotiations, and the comparison metrics are not close – eSourcing is the superior approach. Additionally, organizations that drive a high level of eSourcing usage gain a database of sourcing projects that can be mined to drive better performance in the future. This helps organizations improve agility and shorten sourcing cycles and expand their ability to serve different sourcing needs and use cases. Start driving eSourcing adoption today!
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