Traditional purchasing is the strategic process aimed at selecting suppliers and defining contracts for the purchase of products and services, for an agreed price and in a predetermined period. Instead, e-sourcing goes further, since it uses online technologies as a medium, allowing for more dynamic and efficient purchasing procedures.
In recent years, some guidelines have been defined based on the experiences of leading companies in the implementation of e-sourcing. These experiences have shown that the success of the negotiations in e-sourcing and especially in auctions, is largely due to the strict application of certain procedures. These procedures are mostly independent of the tool used, depending however on the purchasing processes that have been applied.
In this article we will explain some of these guidelines, developing the factors that have already been demonstrated that affect the success of e-sourcing initiatives.
Define needs
One of the most important factors in the process is the correct definition of the buyer's needs. The technical specifications alone are not sufficient to guarantee the success of an online tender and, above all, of a reverse auction. The buyer must provide suppliers with a needs report that includes all the purchase conditions, such as price conditions, terms and modalities of payment, delivery and logistics, award terms, etc.
However, the type of information to be disclosed must be measured, since an inaccurate definition of the requirements, needs and specifications, even being verbose, can restrict the number of participants and erroneously guide the decision towards a single provider, with which the negotiation would not be necessary.
E-sourcing, among other things, saves time in negotiation thanks to optimized processes, more efficient means of communication and exchange of information. It is true that human contact and verbal negotiations will always exist in this process, however, the time limits in the negotiation will be reduced in both directions:
- Time of study and preparation of proposals by suppliers, since they have received the report of needs through an optimized process of transmission of information.Time of decision of the buyer, since it more easily detects the offer that best suits their needs. criteria, both quantitative and qualitative.
What market are we facing?
As a general rule, the most profitable negotiations are those that involve many suppliers in the negotiation. Experience has shown that a high number of suppliers, with qualitatively comparable offers, can favor the creation of a dynamic competition environment, which will allow the successful conclusion of the negotiation in an e-auction. For this reason, organizing auctions loses interest if the objective is the purchase of components or products in sectors where we have very few suppliers in the market. In this case, a good relationship with suppliers is more important than any auction, so it is advisable to close the negotiation with the direct award of the offer.
If the buyer expands his volume of business, not only increases the motivation of the supplier to participate in the auction, but also makes his offer more competitive.
Also add that the attractiveness of the offer and the volume of purchase offered (which can be quantified in some points of the supplier's business figures) increase the possibilities of saving in a purchase. In some cases it is necessary to do a preliminary study to classify the demand and make it interesting to a greater number of suppliers.
In the case of a grouped tender, suppliers must bid on all the elements of that purchasing group or none, that is, they cannot address the bids that interest them, but at the end of the process, the entire purchase It will be treated with a single provider rather than distribute it among several.
Adapted auction strategy and parameterization
To start the parameterization in the e-sourcing tool and especially the auctions, all the parameters must have been collected. This parameterization largely depends on the decided strategy, specifications, calculation algorithms, market conditions and motivation of the suppliers involved. Also, and depending on the tool used, the auction type, lot structure and communication methodology must be decided before, during and after the negotiation.
Trading rules
Before conducting an auction, the buying companies have to define the rules and how the negotiation works. These parameters are presented in the form of documents or data visible by email or download, in a way that allows, as is the case of the download, access to information in a transparent, simultaneous and equitable way.
It is observed that the commitment of the suppliers is greater the better and more transparent is the information provided by the buyer. At the same time, the precise specification of these business rules eliminates doubts and resolves possible disagreements after negotiation.
In an auction, it is always a good rule to define the structure and content of lots, opening prices, bid decreases, deadlines, bid extensions, bid and award rules, contact of managers and support, references to other technical documents, tests and auction simulations for training, etc.
E-sourcing, long-term goals
The guidelines previously developed are simple to implement and accessible to most companies. These have been accepted to benefit in some purchasing categories, quickly and in a timely manner, to e-sourcing and especially to e-auctions.
However, e-sourcing should be considered as a long-term process, which provides knowledge of the supplier market, and which, when well managed, affects not only the reduction of prices, but also internal costs.
Therefore, there are other factors that influence the medium-long term success of an e-sourcing program and, as its objectives, are specific and variable in each company:
Definition of purchasing processes and procedures
The first step in developing an e-sourcing initiative should be to ask yourself about the objectives and analyze what the company's current purchasing processes are (if any), the actors, the decision factors, the possible methods and strategies of negotiation and communication.
Secondly, it is necessary to define how e-sourcing can be integrated into existing procedures and how to modify them, what will be the decisive factors and conditions for choosing an e-sourcing negotiation, with or without auction, or a negotiation traditional. The steps in the process, the information necessary for proper implementation, internal and responsible actors, etc. must also be specified.
Election of a person in charge and a sponsor
In the same way that a change in the processes is implemented, a structural change must be implemented, choosing a person in charge or reference of the e-sourcing program and requiring the participation of the people who internally influence its development.
The person in charge, or the responsible team, will facilitate the development and adaptation of e-sourcing in the company as well as the creation of a core of knowledge. In addition, it will work internally with purchasing teams and other stakeholders, in a way that encourages its use while analyzing the possibilities of application and improvements in purchasing projects.
Likewise, there must be an active support made up of senior officials, who is involved in the implementation steps and is informed of the success of the program, so that it offers executive support, credibility and a budget.
Work with the technical / buyer binomial
There is a prejudice that e-sourcing is only a matter for the purchasing department. This is false, since it is a process that involves the entire company and that allows internal collaboration between buyers, technicians and other actors such as those responsible for quality, logistics, finance, management, etc., with the aim of defining and establish the demand criteria.
A strict application of the e-sourcing processes and the collaboration between the actors allows to quickly define the details and specifications, decision factors, supplier evaluation criteria, etc. In this way buyers can focus on other more strategic activities.
Realistic goals and expectations
The objectives will be more successful to the extent that we have correctly defined the needs of the company, analyzed the market and the price trend, and specified the trading strategies and methodologies.
In some cases, the approach under which e-sourcing has been developed suffers from a lack of professionalism, with vague and unrealistic objectives, and with overrated expectations. In this sense, some providers of e-sourcing solutions exploit the attractiveness of saving 25% to 40% on the purchase price, however experience tells us that these indices are not always applicable to all negotiations.
Selecting a tool
E-sourcing does not only include online auction, but encompasses all online tools that facilitate negotiation and create an environment of transparency, standardizing decision-making in purchasing processes.
In this way, the company's objectives, purchase categories, market situation and competition and purchasing processes will determine what functionalities will be required in e-sourcing tools. There is no single tool that is valid for everyone, and depending on the needs, basic or more complex functionalities may be required.
As a general rule, almost all tools allow online negotiations (bids, supplier evaluation, auctions) and may include more advanced functionalities such as document and collaboration management, project, user and workflow management, reusable models and offer analysis, etc. In general, eSourcing tool providers are quite flexible in helping companies integrate their tools and can also offer support and consulting services in the development of one-off auctions or e-sourcing programs.
Internal communication
The implementation of an e-sourcing initiative can affect the entire management of the supply chain. It is important to communicate the results internally and transparently, in order to analyze the level of success, inform shareholders and improve the process. Depending on the companies and their culture, this communication has been carried out by organizing reporting meetings, sending emails, creating case studies or communicating through the corporate newsletter.
In any case, and in order to add value to the procedure, both failures and successes during online negotiations should be collected continuously, while promoting the communication of experiences and improvements during the procedure among actors and involved.
