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.

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.

Andrew Bartolini