Recently, I’ve talked about the need to manage and source more spend— and source it more frequently. And last year, I wrote an article about innovations in sourcing and how they’ve brought new levels of automation to the sourcing space.
While this development is great, it does bring a level of complexity to the space, which begs the question: How many sourcing tools do I need and how do I know which tool to use? First, let’s have a quick look at the different types of sourcing solutions.
- Traditional eSourcing — This is the classic eSourcing solution that was introduced in the late 1990s that supports online sourcing events like requests for information (RFI), requests for proposals (RFP), and requests for quotations (RFQ), commonly referred to as RFQs. These solutions have more or less remained the same over the years even if the user interfaces (UIs) have been improved. Some providers of traditional eSourcing solutions have started to automate part of the process as well (see automated sourcing below), improving both efficiency and effectiveness by bringing transparency, standardization, and knowledge management to sourcing.
- Direct materials sourcing — This is a subgroup of traditional sourcing with the added capability of supporting bill of materials (BoM) structures and cost modeling.
- eAuctions — Perhaps the most revolutionary invention in the ProcureTech space, eAuctions have now been around for 30+ years. Allowing suppliers to compete (or negotiate, if you prefer) for business online in real time can be an extremely powerful tool if used correctly.
- Combinatorial optimization — The ability to create scenarios with constraints can also be extremely powerful. It can be used to allow suppliers to provide conditional discounts that allow them to submit the lowest possible bids, balance non-price factors like quality or risk against price, as well as finding the lowest possible award scenario in complex sourcing events, etc.
- Automated sourcing — This started out as something similar to robotic process automation focused on automating set up, supplier selection, and supplier communication for simpler sourcing events. But as these tools have evolved (often leveraging AI), they support increasingly complex sourcing events.
- Automated negotiations — Unlike the automated sourcing solutions, automated negotiations solutions automate one-on-one negotiations. And rather than driving savings through competitive bidding, it strives to create win-win scenarios by negotiating minimum volume, payment periods, or other, often category specific, terms and conditions.
Some solution providers combine two or more of these types of sourcing tools in their offerings, but no one offers them all in the same solution or suite.
So, what do you need? It depends on a number of different factors, such as what spend categories you have and how much spend you have in these categories, as well as your maturity. Traditional eSourcing (with eAuction capabilities) can bring significant benefits to immature organizations, but it also requires staffing that knows how to use the tools. The automated sourcing tools can be used by less skilled employees, but require set up. They also struggle to support complex sourcing events. Automated negotiations are mostly suitable for larger enterprises with large amounts of spend in specific categories, as the bots (or agents) need to be configured by category.
There are plenty of sourcing tools. But what about the toolbox? How do we organize sourcing tools and allow more casual users to initiate sourcing events (not having to engage sourcing professionals is, after all, one of the main benefits of automation)? For organizations that see the value in having multiple sourcing solutions and are looking to automate more of the sourcing events, they will likely need an intake management and procurement process orchestration (IM&PPO) solution to serve as this toolbox. The IM&PPO solution can collect the necessary information and based on workflow configurations, trigger a sourcing event in the right tool or if it’s more complex route it to a sourcing professional.
As mentioned, what sourcing tools make sense to you depends on a number of factors. If you want to know more, don’t hesitate to reach out to Ardent Partners.
