“International companies spend approximately 1% of their overall procurement costs on administration. The goal of using Shared Services in procurement is to improve the input-output relationship between the procurement processes… Any procurement process that is not a key procurement competency can be considered as a candidate for Shared Services.”
So begins the chapter in a recent CapGemini report for Strategies and Insights for Today’s CPO. Iasta has a fairly large and diverse client base, some of whom use a Shared Services frameworks and others that do not. Consequently, I was interested to see the benefits broken down in the report.
Lowering the costs of predominantly administrative procurement processes.
Improving performance and service quality.
Synergising stemming from economies of scale in processing.
Improving performance management from process transparency.
Unburdening procurement departments from routine activities, so allowing them to focus on core procurement tasks.
I have seen these programs be successful when done in-house or outsourced and they make logical sense, when structured and implemented correctly. CG reports cost reduction of 10-30% on average and payback cycles of 2-3 years, mostly due to reduced personnel costs and efficiency gains.
In a recent Industry Week article, Dave Gleditsch, CTO of Pelion Systems, Inc, talked about some common threads to lean success and how lean and flow transformations can drive impressive margin, market share leadership, dramatic value increase, inventory savings, cycle time reductions, increased on-time shipping performance, and productivity improvements.
The great thing about this particular article is that the lessons learned on the road to lean transformation also apply to strategic sourcing and sourcing technology selection.
Do everything with the customer in mind.
Who are the different users of the application? What do they need to do? Does the application support their needs?
One size does not fit all.
Just like all e-Sourcing applications are not equal, no single e-Sourcing application is right for all customers. Understand your weaknesses and pick the solution with the appropriate strengths.
Show me the money.
It’s all about saving money. Make sure your e-Sourcing application can capture, report on, and track savings as well as assist you with your compliance initiatives.
How good is your company ENTITLED to be?
Does the platform support your vision of how good your company is entitled to be?
Think BIG with respect to process.
Does your e-Sourcing solution align with your processes, increase your productivity, and eliminate unnecessary spend?
As the industry week article notes, there are enormous benefits that can be achieved through stepping back from the process that one has been very close to for many years and envisioning new process relationships that could drive significant cycle time reduction and dramatic elimination of non-value added work while creating improved flexibility. This is the first step on the road to substantial savings.
This is the second installment of our interview with Andrew Bartolini from Aberdeen. He takes some time to answer detailed questions about the supply management marketplace, adoption/traction and future. Thanks to Andrew for spending time to participate.
1. The Benchmark report indicates that many companies still do not use e-Sourcing strategies. From our anecdotal experience, many are averse to auctions and don’t want to use them for fear of encouraging their own customers to use them. How do you respond to these companies?
In spite of a clear and proven value proposition, certain enterprises have resisted utilizing eSourcing as a standard business process. I think part of this is due to the hangover from the early “reverse auction” days where a lack of acceptable business practices and technologies with severe limitations enabled buyers to use these tools as a battering ram to beat down their suppliers. When I was at Commerce One, we spent a great deal of time and energy educating procurement organizations on best practices (level playing field, apples-to-apples bidding, etc.) sometimes to no avail. While most played fairly, abuses occurred and left a bad taste in the mouth of many a supplier. It is why for many years “auction” was a four-letter word in this industry.
But we’ve come a long way, acceptable (read: clear and fair) eSourcing business practices are widely understood and employed and best of all, today’s eSourcing technology is really robust. The functionality has really progressed in the past 6-7 years.
For those companies that have resisted eSourcing, the sad fact is that they are at a competitive disadvantage to their competitors. Don’t want to conduct an auction? Fine, but you can use eSourcing for “sealed bid” events and leverage technology to streamline processes and perform superior bid analysis.
From a supplier perspective there are many benefits to participation including .
• Shorter sales cycle with an automated the RFQ process
• Access to new markets & new customers
• Lower barriers to entry
• Greater competitive information
• Clearer insight into market pricing (New and timely information on state of the market)
• Ability to leverage excess/idle capacity
As I write that last section, I feel like I’ve gone back in time to circa 2000…..
2. The Benchmark report indicated that there is a trend of lower identified savings via standard e-Sourcing strategies. Does this mean that companies just starting to initiate e-Sourcing should worry about reduced savings?
I believe that the trend towards lower savings is indicative of a case of diminishing returns found in the second and third eSourcing cycles of certain commodities. Let’s be clear, used properly eSourcing can enable superior price discovery and enhanced savings (compared to legacy offline processes) by offering a more competitive bid process, it does not change true market pricing. Suppliers participating in eSourcing events may sharpen their pencils, but they rarely check their cost structures at the door.
3. Many sourcing teams primarily run simple, e-Sourcing projects. Can bid optimization (decision analysis) technology help them?
Because it is an under-utilized strategy, I think it first makes sense to offer a definition - Bid optimization uses advanced analytical tools to simultaneously negotiate and evaluate complex bid structures against a wide range of interdependent sourcing objectives, variables, constraints, and scenarios. In plain English (and as it relates to eSourcing) – bid optimization enables buying organizations to evaluate often complex bid information against a set of criteria to make the best award decision. At some level you can employ bid optimization with less complex eSourcing events with few data points, however, the real benefit to enterprises is the ability to conduct complex eSourcing events with multiple bid inputs to make your decision. For those readers with a financial background, the modeling capabilities of bid optimization engines today match and in some cases, exceed what can be done in Excel. The ability to incorporate a much broader set of evaluative criteria means that you can use eSourcing for a much greater number of categories
4. Of all the e-sourcing techniques you covered in your report (a) which techniques seemed to be the most common and (b) which technique(s) are not and (c) which seem to deliver the most significant improvement after introduction.
a. We are certainly seeing greater usage of non-price factors in utilized in award decisions and a higher number of events focused on total landed cost. Scoring (Team or Automatic) which may be used in events that I described in the previous sentence is widely used. I personally do not consider it an advanced strategy but the use of multi-stage events is becoming more commonplace.
b. Commodity hedging and NPV or other financial modeling are rarely used; supplier alternative bidding also has limited traction.
c. Our research shows that bid optimization, matrix or tiered pricing, and scoring deliver significant improvement. Our research also shows that most enterprises use these strategies rarely, if at all.
5. Bid optimization technology seems too complex for the average Sourcing Professional to use. Is this true? Does one need a PhD to effectively use bid optimization technology? Do you think advanced sourcing optimization is being used well yet? Is it still ahead of the curve for most companies?
Our latest report shows that bid optimization is successful when employed but very under-utilized.
As my predecessor once noted, ‘these are not your father’s eSourcing applications.’ The capabilities within many eSourcing applications are quite astounding. This means however that there are many moving parts that may appear complex to an occasional user. For a power user or someone who is well-trained, the applications are generally intuitive and very buyer-friendly.
Best in class enterprises have passed the adoption challenge and can now focus on optimizing their processes and on using advanced strategies.
However, most enterprises are still smack-dab in the middle of the adoption cycle (and it has been a long one) and lack the internal expertise to utilize bid optimization.
It is my view the time is now to start using bid optimization and other advanced sourcing strategies more aggressively. Best in class enterprises have the capabilities to do so and are doing so….. For the average enterprise, leveraging external expertise is a great way to start, I also highly recommend centralizing your eSourcing capabilities to work your way up the learning curve as quickly as possible.
David – Thanks for another opportunity to discuss The Advanced Sourcing & Negotiation Benchmark.
Part of successfully launching a reverse auction project is preparing for the related questions and issues that might occur. Preemptively addressing some will avoid confusion and help the process. Suppliers might have questions about the process they are being involved in once an auction invitation and package is issued and accepted. Have these answers ready and suppliers will feel more comfortable with proceeding:
How many auctions have you conducted?
Has this category ever been auctioned previously?
Did the buyer qualify the invited suppliers?
Is the buyer willing to work with any of the invited suppliers?
Is the actual buyer aware of the auction and involved in this process?
What is the expected outcome of the auction and time expected to award?
What other costs are included in the bid price (e.g. escalators, transportation costs, pallet exchange, etc.)?
Is this a “winner-takes-all” auction for several products or will the lots be awarded individually?
Is the buyer bound to award the order to the supplier that submits the lowest bid?
Is the buyer obligated to re-open the auction if the winning bidder is disqualified?
Are all terms and conditions for the order included in the auction specifications?
Will any further negotiation take place after the event closes?
Will finalists be invited for further presentations and award conclusion?
One other suggestion would be to limit the use of the term “reverse auction” as it tends to remind suppliers of the old days with wild and uncontrolled auction environments. We normally use terms like sourcing projects/events, competitive bids, or online negotiations which shows that the bid is more of a involved process, not just a price war.
There will always be questions about the project itself, as well. Being prepared with solid answers will show that a buyer is prepared and the event should be taken seriously. You cant expect a bidder to “sharpen their pencils” if you haven’t done it yourself.
Add commentFebruary 22nd, 2007Sean Delaney - Iasta UK
Another great day at eWorld. The event seems to go from strength to strength. A significant change from September was the quality of the seminars. The feedback from delegates was that the all seminars were thought provoking and kept away from the temptation of being thinly veiled sales pitches.
One observation over the past 2 days was the almost blaise attitude to reverse auctions but today I was reminded in 2 separate conversations at how significant they still really are.
2 SmartSource clients executing more advanced strategies delivered significant benefits for 2 different reasons. Firstly one demonstrated in a restricted supply market savings can still be achieved and secondly the other auction delivered savings in a category otherwise deemed untouchable.
So I have learnt a valuable lesson that (yet again) eSourcing has yet to reach its full potential and that is why eWorld should remain a key event in the procurement calendar.
1 commentFebruary 21st, 2007Sean Delaney - Iasta UK
First Day of eWorld Feb 2007 and the market has changed yet again! It seems delegates truly think auctions are soooo last year. eRFx is for beginners and optimisation is first school mathematics!
Well I exaggerate to make a point but in truth it is great. The benefits of eSourcing are not longer about just product savings by event. We have gone past that point and procurement managers are benefiting far more from the process savings. More crucially it seems that this message is feeding through to much more senior levels of management.
The interest in Spend Analysis is really encouraging and this is further emphasised by the level of positive feedback from the Kalido presentation on Data Warehousing. The benefits of managing information are definitely coming into focus however there still remains the issue of communicating these benefits to those individuals divorced from the detail (so are we back to where eSourcing was 5 years ago?)
So the mere fact that procurement now feel empowered to investigate this area further is a real water shed and is clear evidence to the progress that has been made in the eSourcing market place.
Another noticeable interest is regarding contract management. Again a real shift change here with a much higher level of understanding.
Well here’s to Day 2 and if you want to come along its still not too late. Just turn up and register – its well worth a days visit!
Yesterday, like many others, I learned from Spend Matters that Apexon had basically shut down operations by releasing most of its team, including executives like Kevin Brooks. Many are familiar with Kevin from positions at supply management companies and from posting guest blogs on sites like E-Sourcing Forum and Spend Matters on topics like supplier performance. It appears that the assets are in the process of being acquired by another company which will roll it up into a larger portfolio.
Kevin is a great person and this is very unfortunate for him personally. It now makes sense why he did not have time to contribute to the guest posts here a month ago as there was quite a bit going on there at the time. I do have all confidence that he will not be on his own for long, however, as he is very talented and intelligent. After that, I thought about the factors that led to this occurrence. I am probably oversimplifying because I do not know everything that happened at Apexon nor do I profess to be an expert on supply risk, performance or quality. That being said…I am left wondering:
Can these types of applications exist independently? The supply management software community has already lost high quality vendors like Apexon and Open Ratings. Not lost in entirety, but lost in autonomy. Both companies where highly lauded as ground breaking and ahead of their time but eventually ground to a halt (remember Mindflow?). However, the execution never met the expectation which leads one to believe that out-thinking the masses increases the possibility of failure to a level of unacceptable risk (for both vendor and customer). It also shows indications that having too tight of focus, or niche, becomes an unstable business model with enterprise applications. There is no question that both companies delivered immense value and very strong value propositions with functionality that is needed by many in procurement and supply chain but were unable to monetize that into a sustainable business.
I believe that points to the fact that a supply management software company must offer a mixture of broadly applicable functionality + useful features + cost effective pricing, even if it does not go into the deepest levels of detailed minutia or special cases scenarios. A software company can get hopelessly mired in these types of development projects. In fact, Iasta once built an advanced type of bidding lot for a $50mm reverse auction event and, to my knowledge, that setting has never been used since - by any customer, and it took us a MONTH to develop! It seems like supplier performance functionality will ultimately be handled by eSourcing or ERP applications or home grown internal data, as Charles Dominick commented. Charles, I believe “cracking the code” of SPM lies in not relying on it exclusively for revenue success.
My next observation comes back to my old soap-box of being a slave to other people’s money. As Iasta has grown, I have seen clear benefits of infusion of capital. Although we have never done this, there are compelling opportunities which would allow us to flip a switch and double or triple our development, operations and sales bandwidth. Alas, it has not happened - by choice. A software company is difficult enough to manage without having influence pushed down into the business decisions which are led by groups that want a certain yield on their investment. Jason mentioned that Apexon was looking for a path to $50 million in revenue within 3 years instead of 5. I repeat $50,000,000!! And, 5 years was too slow? I highly doubt Apexon would have made that number any way, with price compression and feature diversity on a non-stop curve. This industry is littered with companies that over promise and under deliver but not necessarily at their own fault. However, who cares if they made $50 million in revenue, are satisfied customers and stable businesses not enough? No, its not, when people want their money back. There is an inherent danger when numbers are the only metric used for business decisions and evaluation of success.
I apologize for the rambling stream of consciousness but wanted to capture my initial thoughts without edit. Ultimately, this is just a continuation of the expected market consolidation. As stressful as all of this is, I still feel comfortable that we are moving in the right direction and we will not be surprising the market with this type of news, even if we have to “sacrifice” hyper growth for our pedestrian 100% YOY. I can live with that.
Recently, our European outpost took part in a major SRM research project headed by Capgemini in the Netherlands and Mario van Vliet - Global Supply Chain Lead. As is consistent with many of these studies, there are very clear objectives and areas of focus that should be closely examined and considered by leaders in procurement. For instance, the top three areas of critical focus were: contract compliance, improved spend visibility, and better sourcing process and automation.
This sourcing process improvement was highlighted and discussed further in this quote, “CPOs are also recognising that standardisation plays a major role in critical business areas. Although the survey results showed a strong desire to drive standardisation across the sourcing process, surprisingly, the degree to which auctions and esourcing have been successfully integrated into businesses was lower than Capgemini expected.” Effective adoption of e-auctions has been a continuing topic of ESF and will continue to be addressed over time.
Also of interest to me was the closing statement from the chapter covering Spend Management techniques and objectives:
“…you have to understand what types of saving levels are available; we have defined these as being, identified, captured, delivered and ring-fenced savings. Then, having begun an improvement programme, you will have to deal with a variety of stakeholders. Having a clear understanding of both their needs, and their “wish list” is vital to ensure the acceptance and compliancy of the necessary changes. So, there are more factors than just technology, and its use, that must be taken into account if value is to be generated. The organisational context is vital to focus your efforts. Capgemini’s Spend Management Pyramid visualises the interrelationships of the various elements that enable world class spend management. With all of these elements in line, bottomline savings will logically result.”
Chapter 12 discusses the usage of technology in procurement organizations. The three must haves and most needed tools required by a purchaser are: eProcurement, Contract Management, Supplier Management and eAuctions.
This extensive research is very broad and I plan to highlight a couple detailed components in subsequent posts over the next couple weeks.
This week, I have been extensively covering the recent Aberdeen Research - Advanced Sourcing and Negotiation Benchmark, which was sponsored by Iasta. As part of the dissection and discussion, Andrew Bartolini, has offered to answer some questions from us here on E-Sourcing Forum. It will be split into two separate posts.
1. What were some of the key trends identified through survey responses and how did it differ from your expectations? (Was there anything in the results of the benchmark that surprised you?)
I think we captured some trends that were positive and some negative in the report. On the positive side, we are seeing an uptick in the usage of advanced sourcing strategies. Roughly 80% of enterprises now report to employ them at some reasonable level of frequency. And, while I’ve defined advanced sourcing somewhat broadly for purposes of this report, we’re also seeing these strategies employed on about 30% of all eSourcing events. This is a significant step forward. On the other hand, sourcing teams still have tremendous room for improvement as they leave an average of 20-25% of their identified savings from an eSourcing event on the table. Additionally, a full 30% of respondents in this benchmark lack any type of standard eSourcing or Strategic Sourcing process - in a decentralized sourcing environment, this is a recipe for certain disaster. The finding, that 30% of enterprises fail to utilize standard sourcing processes, was not a surprise, and yet, I am always surprised that there are so many enterprises that will invest in an eSourcing solution, commit time and resources to its deployment and then fail to provide any level of support to their end-users - particularly since the change issues are so great and since this expertise is so widely available.
2. How can companies drive improvements in their “realized savings”?
At the start of the decade the widely touted McDonald’sian stats of “Billions and Billions” saved from eSourcing were so over-hyped that they distracted procurement teams from focusing on the right savings metric – realized (or implemented) savings. Some in finance (and my partner, Vance Checketts) would want to take that metric one step further and focus on booked savings, but that gets you into an entirely different type of negotiation……. an inter-departmental one.
There are a number of things that can really help increase realized/implemented more savings to the bottom-line – A few key recommendations, in no particular order:
Gain the business stakeholders buy-in at the outset of the initiative and involve them in the process to ensure implementation
Start actively tracking savings leakage and reward those that minimize it
Develop firm requirements and stick to them – no post-bid finagling
Clearly define you award criteria and then make your award(s) based upon the final bid information.
Integration to a contracts solution
3. The Benchmark report indicates that companies need to leverage category, process, supply base and technology if they want to sustain e-Sourcing results. Is there one that is more important?
The simple answer is that they are all vital components of a successful eSourcing program. Yet, for different categories and for enterprises with eSourcing programs at different levels of maturity, placing emphasis on one area over another may make sense.
For example, newer eSourcing programs typically need time to develop their own process and technology expertise. In the interim, they need category expertise to build the strongest eSourcing pipeline with a set of “quick win” categories. Process cycle-time savings should be reinvested in the supplier discovery part of the process. With process and technology expertise readily available from solution providers and external consultancies, supplier discovery is really the area where enterprises fall down. Consider the average buyer with a long tenure managing a category – just making the move to eSourcing has been huge; doing anything beyond a “three bids and a buy” event is unthinkable…. so that’s what we get. The real challenge is that the introduction of eSourcing and some level of transparency and competition to a “three bids and a buy” – think poorly qualified supply base - process can still achieve some level of savings – when this happens, changing buyer behavior is even more difficult.
4. The Benchmark report indicates that 40% of e-Sourcing projects use price as the sole decision criteria. Why is this a problem? What can teams do to change this?
Price as sole evaluative criteria is a perfectly acceptable for many categories – your “commodity” goods and services – and perfectly unacceptable for others (see examples below). The key here is the often cited ‘apples-to-apples’ bid comparison - Are all of your participating bidders equally qualified to provide the good or service and is that good or service fungible. If so, have at it. Many will choose to run a stage one eRFI to ensure this is truly the case.
Where a price-only event makes sense - A bid on the administrative “mark-up” for a contingent labor contract where all suppliers are utilizing a standard SLA.
Example of a price-only event does not make sense – Hotel room bids where you have a range of high quality bidders and some that are suspect all bidding on the same contract.
5. What are the top recommendation you would provide to companies just getting started in eSourcing? and for those that have tried eSourcing but would not be considered Best in Class (i.e. high performers)?
There is a clear continuum for eSourcing programs.
If you are just getting started, drive adoption with an executive mandate that is actively tracked and widely communicated.
For those that have had some degree of success but need to ascend to the next level, standardize and where possible centralize your eSourcing processes. The occasional eSourcing user will never develop the acumen to utilize the readily accessible (and quite powerful) tools that can drive a focus away from lowest cost and to highest value.
First and foremost, you have to remember that eSourcing is a widely accepted practice - you do not need to reinvent the wheel! If you don’t have the expertise you need to run a successful program, leverage it from external sources – solution providers, consultancies, research, and yes, even blogs!
David, I’ve enjoyed the conversation and will be back for round 2 next week where we will discuss some of the findings related to specific advanced sourcing strategies, like optimization.
In Aberdeen’s new report on Advanced Sourcing and Negotiation, it identified tendencies of what is considered Laggard corporate frameworks for procurement. If you find yourself confirming these problems consistently, it might be time to think about eSourcing tools to help.
Process: The level of sourcing standardization across the enterprise and the relative maturity of the processes in place.
*No formal enterprise sourcing process
*Process is manual
*No visibility
*Process has variability
Organization: The centralization of sourcing efforts within the enterprise. Organizational structure, skills, and decision-making alignment across the company. Program visibility by executive leadership; business stakeholders’ engagement.
*No formal sourcing organization
*Separation of direct and indirect materials may be needed
Knowledge: Level of strategic sourcing, category-specific, supply market, and technology expertise; platform to leverage knowledge across extended organization.
Technology: Existence of sourcing automation, extended strategic sourcing automation to include spend analysis and contracts; advanced sourcing capabilities.
*Limited exposure to eSourcing applications
*Limited use of other supply management technologies
*No advanced sourcing traction
The report also covers Industry Average and Best in Class companies. It is available free with this link.
Aberdeen’s recent report broke down responses from over 160 survey respondents. The numbers in the chart represent some findings that best in class companies scored, relative to all others involved. Of interest:
A clean sweep of 100% had a clear strategic sourcing process which was capable of sourcing 61% of spend strategically. The usage of eSourcing technology is probably a facilitator of this since the technology acts as a catalyst for sourcing process improvement. This is 50% more spend sourced strategically than the rest of the respondents. A higher percentage of spend sourced well means greater savings by default, regardless of method of bid collection.
97% of respondents have an active eSourcing framework and application in place.
Best in class companies that use eSourcing, suffer an average savings leakage of 14% while all others register 24% savings leakage.
39% of the time, price is the sole award criteria in BICs while it is actually higher in all others (41.5%). Opponents of eSourcing claim that this is a drawback of using this technology but the data shows that more companies are defaulting to price when they don’t have tools in place. This is likely due to the fact that the information needed for better decision making is spread out and unusable in a timely manner.
Enterprise: Brunswick Corporation is a leading global manufacturer and marketer of boats and other sports and leisure equipment and accessories.
Category: Global Freight spend for 600 shipping lanes and 3 container types.
Strategy Employed: Multi-stage e-RFx, utilizing an embedded optimization engine for decision analysis.
Description: Brunswick needed a faster, more effective way to source its global freight spend. Brunswick structured a multi-stage e-RFx that accepted final bids in sealed bid format from 20 suppliers. The sourcing team then utilized the bid optimization engine to create various award scenarios for the 6,000+ data points based upon different combinations of allocation and business constraints including container size, number of suppliers per region, and cost.
Results: While the award decision was not the lowest cost scenario, significant savings were achieved. The sourcing team now has a full view into the different cost components of their global freight suppliers and will be better positioned to track/predict future price movements. The sourcing cycle time for this category was cut in half and the team now has a template to leverage for future e-sourcing events in this category. Brunswick also believes that the development of an RFx template combined with bid optimization will save the team an additional six months on each future freight bid.
Enterprise: Food and beverage company
Category: $80 Million in Diesel Fuel
Strategy Employed: Reverse auction and bid optimization
Description: Facing dramatic increases in diesel fuel prices, the sourcing team took an advanced sourcing approach to managing costs while balancing the needs of 5 separate business divisions. They conducted a series of reverse auctions by geography that focused on supplier margins and transportation costs (cost components of delivery vs. actual fuel costs) to capture supplier bids. The reverse auction results flowed directly into a bid optimization engine which was used to determine optimal supplier awards given specific business constraints per business unit and location.
Results: The company captured competitive pricing and optimized total cost awards within 3 days. In an escalating fuel market, they achieved savings on more than half of locations while ensuring all business constraints were met. The team also gained a much better understanding of the supply market and the cost structures in this category.
Enterprise: USPS
Category: $30MM in Pallets to be delivered to 25 unique distribution centers.
Strategy Employed: Flexible bidding with optimization after earlier reverse auction.
Description: The purchasing and supply management team at USPS needed to source its supply of shipping pallets for 25 DCs across the U.S. After an earlier reverse auction, the category team felt that there was an opportunity to improve the results based upon their historical offline strategic sourcing experience. Using the reverse auction as a baseline, USPS created a flexible bidding event with optimization that enabled suppliers to participate in a second round of bidding where unconstrained by specific requirements. Suppliers were able to define the structure of their entire bid and express conditional discounts.
Results: USPS’ use of flexible bidding with optimization enabled suppliers to define: a) specific bid bundles, which created new volume discounts, b) production schedule changes c) flexible delivery times d) supply locations, and e) payment terms. An incremental savings of 9% was achieved by allowing the suppliers to define the market for pallets. An additional benefit was a key location no longer being supported by a single source.
These examples are all taken from the recent Aberdeen study on advanced sourcing and negotiation and show how companies use advanced techniques in an eSourcing application. All of the categories are traditionally thought of as “difficult” which translates into un-started projects in many companies. The common theme shows that complex categories can be addressed through eSourcing technologies (even reverse auctions) and usually are supported by using many rounds of complementary functions within the application.
Iasta recently sponsored an Aberdeen benchmark report that covers mainly how eSourcing is being used by some of the best companies in the world, how they are extracting the most value out of these respective tools and what they are doing to go beyond the simple project focus into more advanced application of eSourcing functionality. These metrics and discoveries were the primary reason for our involvement and I felt this was one of the most interesting research studies done in the last few years. At an executive summary level:
Key Business Value Findings
Enterprises that employ advanced sourcing strategies are positively impacting product development cycles and building stronger supplier relationships by making better, more informed decisions. They are also driving innovation and to be certain, they are saving more money than their competitors.
On average, the enterprises participating in this benchmark report:
• Identify savings of 11.9% per sourcing event
• Realize savings of 9.4% per sourcing event (savings that are actually implemented and “realized”)
• Utilize a formal strategic sourcing process on 43% of their total spend
• Utilize e-sourcing across 20% of their total spend
• Employ advanced sourcing strategies on 15 to 40% of their sourcing initiatives
Considering the benefits seen by the average e-sourcing program, it is surprising that a full 36% of this benchmark’s respondents (and 20% of all large enterprises) fail to utilize any level of e-sourcing.
Implications & Analysis
Best in Class enterprises use formal strategic sourcing and e-sourcing processes to drive greater e-sourcing throughput, achieve higher than average savings, and provide greater value to the enterprise. They are 32% more likely to employ advanced sourcing strategies and proclaim a 54% edge in their proficiency. Their superior performance is perhaps best exemplified by having realized savings results that are 39% better than their competitors.
These are very powerful findings and some of the data mined and case studies used are directly from Iasta clients that also participated in the study. This week, I will continue to examine the results and report different aspects here.
I read a pretty interesting article in Fortune last night which went through a review of the much discussed, new operating system from Microsoft -Vista. After years of delays and security flaws, the new system is out and ready for the stampede of customers…
Alas, this has not happened, and for obvious reasons. I have a computer that is barely 12 months old and the crushing load from Vista would basically make my computer inoperable. Just sitting idle, a computer will need to allocate 512Mb RAM to breathe normally. Most new installations of Vista will come from new computers being built right now with the appropriate hardware. Another radical change in corporate IT, is the release of IE 7.0, which I actually like a great deal.
I mention all this because we, naturally, had to perform testing on these for compatibility with our software - SmartSource. I proud to confirm that we have had zero issues with software working well with both changes. However, it would be naive to just assume this happens with everyone. In fact, the Microsoft Partners webpage has intermittent and persistent problems with page loading on IE 7.0 (I am not kidding). Wells Fargo has huge warnings about incompatibility with the new releases and similar examples are seemingly endless. From our standpoint, there is always a hold-your-breath moment when Microsoft makes major changes. Fortunately, our software is rarely effected and we can concentrate on features, not workarounds!
Enterprises report that their top strategic procurement action is the continuous effort to aggregate and centralize enterprise-wide spending. With the category of print specifically, Aberdeen has found that many enterprises do not leverage volume discounts but instead continue to engage multiple print suppliers and utilize ad-hoc purchasing methods that may vary in different business units or regions. A centralized approach also allows for improved monitoring and tracking of purchases. We found that on average, 41% of print is purchased off-contract, leading to significant lost savings opportunities.
Obviously, that speaks for itself and I think is very typical of this spend category. Some things I have noticed within print projects are:
Print can be extremely complicated to build into a sourcing event, especially when dealing with huge numbers of line items and alternative printing options. Many times, consultants are brought in to develop strategy and execution of this process.
Print is frequently a protected category in an organization, many times being “sourced” by individual departments or flowing through Marketing. There is also a large amount of supplier protection in this category when purchasing is not involved.
Some of the most successful reverse auctions I have ever witnessed have been in print with savings north of 50% not uncommon.
Specifically, the report is 24 pages long with many aspects of print strategy discussed, including: mapping out and building process, increasing collaboration, and measure/report savings and performance. They also mention that “best in class enterprises are able to achieve significantly better results and on average, are sourcing and procuring 64% of their print online.” This includes using e-Sourcing technology for larger spends.
I think this is a must read for any organization that has a significant spend in print and plans to formally address it.
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