My total cost approach is quite simple and can be integrated with any supply chain management. Barring any time sensitive procurement, quality, obsolescence issues, I frame the cost savings within the context of the 80/20 rule.

80% of the direct material cost belongs to only 20% of the items. I’ve streamlined the spreadsheet with few metrics. Most of my time is database management of sources and actual targeting of qualified vendors.

Dan
quicknex.com

My total cost approach is quite simple and can be integrated with any supply chain management. Barring any time sensitive procurement, quality, obsolescence issues, I frame the cost savings within the context of the 80/20 rule.

80% of the direct material cost belongs to only 20% of the items. I’ve streamlined the spreadsheet with few metrics. Most of my time is database management of sources and actual targeting of qualified vendors.

Dan
quicknex.com

Making it easier for people to buy things is a laudable goal, but it can conflict with taking the time to buy things right. I’ve always been fond of Frank Herbert’s Consentiency universe (”The Dosadi Experiment” and “Whipping Star”). In Herbert’s world, government has become too efficient, new bureaucracies spring into existence overnight, new laws are passed in hours, and so on. To stop this juggernaut, the Bureau of Sabotage was created to throw spokes into the wheels of government, slow it down, and thus save humanity and its allied species.

If we suppose that efficient e-procurement is Herbert’s out-of-control Consentiency government, then perhaps e-sourcing is Herbert’s Bureau of Sabotage. As Dave implies, it can be an uneasy relationship.

I’m not opposed to a marriage of the two, but here are some practical concerns. First, catalog buying systems are gamed by suppliers so that prices are artificially lowered on market basket (sourced) items, and artificially raised on everything else. This nicely trumps sourcing efforts, and also defeats today’s primitive attempts to pinpoint bypass spend. Second, only IRR (invoice recovery and review) measures can establish contract compliance. Just because I bought something through an e-procurement system doesn’t mean that the purchase was compliant. Did I really get the negotiated price? Who knows? Third, many commodities change price over time, in some cases quite rapidly — so contracts are written as “market price” or “market price + x%.” Now tell me whether my pricing is compliant or not.

There’s an amusing dialog between Michael Lamoureux and a correspondent on Sourcing Innovation (http://blog.sourcinginnovation.com/2007/11/04/sourcing-lifecycle-management-i-the-direct-sourcing-cure.aspx) where the correspondent points out that the process savings from e-procurement, which was once touted as a strong reason for implementing it, has historically been zero. Lamoureux responds gamely, his argument being that the time savings from e-procurement allows Procurement personnel to spend more time being strategic. Well sure — if they have the time, given the accelerated process.

Dave, I’d love to hear your thoughts on this.