Limits of eSourcing?

1 comment January 15th, 2008 David Bush - Iasta

We frequently get asked questions, such as to what the bottom limit of eSourcing might be? There are a few factors to take into consideration when responding to this question, but the short answer is, there are no limits.

First, it should be noted that there are limits to spend on fully managed reverse auctions. This is for obvious reasons, since the fees for this process can easily reach 10% of the spend value, once you go below certain thresholds (and depending on the vendor). As a general rule of thumb, I would cut off the spend to be managed by a third party somewhere around 5% of spend. This will give you ample room to eclipse the fees and still capture the savings.

Taking this situation out of the thought process, you can now effectively argue that you should never consider a lower limit for sourcing automation, which is essentially what eSourcing is. This is why your organization should always be considering a self-managed eSourcing application. There is no reason a $5,000-$10,000 bid should not be done in the process that has been developed within the eSourcing application. I have seen many successful reverse auctions under $25,000 in spend for great categories like fence construction/painting, shotgun shells, solvent delivery/removal, coffee services, etc. Not only are you actually sourcing the category, but the spend is being captured in the software and can be reported on and tracked.

Make sure you consider all the benefits of eSourcing when trying to determine the low end of effectiveness.

Entry Filed under: General, Supply Management Best Practices