Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I’ll be reviewing a whitepaper entitled “Advanced Sourcing:
Achieving the Next Level of Savings and Efficiency in Your Supply Chain” from Supply & Demand Chain Executive and CombineNet.
This whitepaper starts out by contrasting three different approaches to using technology in sourcing activities: the reverse auction, the e-RFx, and Advanced Sourcing via Expressive Commerce. Because it is written by CombineNet – a sourcing optimization solution provider – it is no surprise that the whitepaper paints Expressive Commerce as the best thing since sliced bread compared to the reverse auction and e-RFx options. Yet, some of the points made are not without merit. I’ll share some highlights from the whitepaper’s assessment of each approach…
Reverse Auctions – “For commodity items with little strategic value, or for items that are not being centrally sourced, reverse auctions can be very beneficial…[and] have produced significant results in many spend categories.” However, the “lack of analytical power within reverse auction technologies forces a simplification of the items being sourced, to reduce the size of the problem set as well as its complexity. Sourcing teams group items with similar characteristics into ‘lots,’ ‘bundles,’ or ‘market baskets’ which” do not necessarily represent the most efficient combination of items from a supplier’s perspective and, therefore, can result in inflated bids.
e-RFx – Compared to reverse auctions, there “is a broader ability to collect non-price (per item) factors in an e-RFx, including lead time, quality of service, terms and conditions, etc.” However, the “analytical limitations of e-RFx also pose the same challenges as reverse auctions in the inclusion of side constraints, such as business rules and stakeholder preferences…More meaningful analysis is often conducted outside of the tool, by business analysts or others with a more technical skill set using data exported from the e-RFX tool. This analysis consists of identifying award scenario options and crunching numbers within a spreadsheet to reconcile supplier proposals with the organization’s constraints. This can be a very slow process, taking days or even weeks to analyze mildly complex scenarios.”
Advanced Sourcing via Expressive Commerce – With Advanced Sourcing via Expressive Commerce:
- “Suppliers may create their own bundles of items, conditional offers, and propose alternative items (or service attributes) to take advantage of their operational or production efficiencies.”
- “The sourcing team (including stakeholders) use an automated scenario analysis tool to build and scope ‘what-if?’ award scenarios to evaluate supplier proposals alongside their own constraints and preferences.”
- “The optimization engine calculates the total cost of the scenario, and identifies the cost impact of conditional offers, alternates, and side constraints.”
- “The buying team compares scenario results to find the solution that best meets their needs.”
The whitepaper goes on to more substantially describe the analysis process available to the sourcing team.
While the whitepaper beats up the more simple approaches to sourcing (which, in my humble opinion, are just fine for a large percentage of sourcing projects), one thing that it doesn’t do is describe whether “Advanced Sourcing via Expressive Commerce” leverages some of the more effective features of reverse auction and e-RFX approaches, namely whether the suppliers can get feedback on their rank, whether they can improve their proposal in an “electronic negotiation” manner, and whether their is a deadline for submitting proposals, which is an important tool in persuading a supplier to put its best offer on the table.
Though this whitepaper is somewhat incomplete in this manner and biased, it is still rather good and every procurement professional should evaluate how optimization can fit into its department’s strategy. I know that I would have loved it if a tool like this was available in the mid-90’s when I managed the procurement of outsourced aircraft component maintenance services. We had many categories of items that were contracted for repair and a supply base that had suppliers that were all over the map in terms of their capabilities to handle multiple categories. It leaves me wondering “what if?”
If you would like to get your own copy of this whitepaper, you can download it from Supply & Demand Chain Executive’s Web site (registration required).
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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