Friday, October 10, 2008
ELP Articles (Edition 3)
Posted: Thursday, November 03, 2005, 11:00AMAuthor: Paddy Lawton - Digital Union
Published in: Edition 3 (October 2005)
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KNOWLEDGE MANAGEMENT TAGS
"Technology", "Spend Management"
Technology: A creative process
Buyers and suppliers are now using the internet in increasingly sophisticated ways, transforming the way they do business, says Paddy Lawton
In the early days of e-sourcing, when there was ample low hanging fruit to be picked, price-only reverse auctions and sealed-bid eRFPs helped buyers drive savings across appropriately selected categories.
However, while some of these “quick-hit” opportunities can still be found today, buyers have accepted that simple auctions and eRFP tools can be only a part of a buyer’s toolkit.
Early auction and eRFP tools leveraged the internet as an accelerator, allowing buyers to engage dozens of suppliers in negotiations to drive down the price of a standard product.
The internet-based platforms allowed buyers to shorten the timeconsuming process of shopping around among disparate suppliers to get the lowest possible prices.
The challenge for buyers was that these price-only negotiations of standard products could only address a small part of the overall expenditure of large, complex buying organisations.
As acceptance of internet-enabled sourcing increased, buyers sought out additional techniques that replicated or improved the traditional negotiation processes used to address other areas of expenditure. As Chirag Shah of Trading Partners outlined in his article in European Leaders in Procurement (summer 2005) additional auction and sealed bid approaches were introduced by consultants and software providers and, eventually, gained broader acceptance within buying organisations.
As the technology to conduct Dutch and Japanese auctions and requests for quotation for categories with hundreds of items emerged, buyers recognised these tools as internet-based enablers that improved upon the traditional process of iteratively refining the specification of a product or service while negotiating the final price with prospective suppliers. Combined with reverse auctions and price-only RFPs, these next generations of enabling tools allowed buyers to bring more spend under the management of their e-sourcing programs.
The increasing use of expressive bidding and optimisation represents the next stage in the evolution of e-sourcing technology sophistication. In spend categories where buyers need to move beyond accelerating or enabling traditional sourcing techniques to generate new value, the innovative application of capabilities brought about by internet-based sourcing tools can have a transformative effect.
The basic premise behind the expressive bidding approach is that successful suppliers in strategic spend categories behave like partners, and should be leveraged for creative ideas to improve efficiency and generate savings as part of the sourcing process.
It is also often the case that strategic spend categories represent such large expenditures that they can render simple price-only strategies of supplier reduction and volume consolidation ineffective. Those fruit were picked years ago.
To create value, buyers and suppliers first need to create win-win scenarios for mutual benefit, and expressive bidding for soliciting creative proposals from suppliers, coupled with optimisation technology for analysing “apples and oranges” proposals, have been helping buyers to capture these opportunities over the past 18 months.
Perhaps more important than individual cases of where expressive bidding and optimisation have generated value is the fundamental shift in approach that the successful application of these techniques represent to the providers and users of eSourcing technology.
The change in mindset from using the internet to facilitate or improve traditional ways of trading to using the internet to create new approaches for working more intelligently with suppliers is the broader trend that will shape future evolution of these tools. The process of realising the transformative benefits from e-sourcing has only just begun.
Paddy Lawton is vice-president, Europe, Verticalnet, www.verticalnet.com
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