E-Sourcing – Choosing the Right Tool and Category is Vital to Success

By: Lisa Bryan
Submitted: 2007-01-17 12:17:14
Print this article | Tell a friend | For publisher | Social Bookmarking
Rating:
 

e-Sourcing is the use of internet technology used by purchasing professionals to find suppliers and negotiate prices or reduce cost for a wide range of goods and services. A variety of online negotiation tools are used – including RFI (Request for Information, RFQ (Request For Quotation), RFP (Request for Proposal) and electronic auctions.

It is important to understand when and how each should be used to achieve the best results. Incorrect use can bring about unsatisfactory experiences and can lead to “bad press” for e-Sourcing.

This article focuses on the criteria which should be applied to determine the most appropriate e-sourcing tool to use.

Strategic importance of the category

An auction is generally recommended for those products with a high value and a minimum or small risk. High spend, low complexity is the ideal scenario for this type of price negotiation. The level of spend which will attract suppliers will differ from category to category but as a rough benchmark we generally look at spend over ?150,000. In nearly all other cases, requests for quotations (RFQ), requests for proposals (RFP) manual negotiations will be much more appropriate.

Is the specification clearly defined?

Clear and unambiguous requirements must be specified so that suppliers are competing on a ‘like for like’ basis and not working to different assumptions. A clear set of requirements (commercial, technical, logistical etc) will allow suppliers to work out the cost of servicing the account prior to the auction. If requirements cannot be clearly specified then the RFP is likely to be more appropriate.

Are the market conditions favourable?

An auction requires competition in the marketplace. The more potential suppliers there are available, the more likely a good auction result will be achieved. Also consider the marketplace dynamics – are there new entrants eager to win market share? How profitable is this sector to suppliers? Depending on the category these conditions may change quite frequently so holding the auction at the right time is crucial. If the category does not pass this test, other sourcing strategies will be more appropriate and will probably involve the need to work closely with suppliers to secure supply and will focus less on price but on total cost.

Cost/risk of changing supplier low?

A category may not be suitable for auction if the time taken to change supplier, the risks associated with change or the cost of changeover is high. Switching costs should be clearly understood in relation to the length and value of the contract.

It is possible to auction certain complex categories but this is generally done after a thorough tender / requirements definition process has been undertaken. This ensures that both parties understand the cost and implications of doing business. Good e-sourcing platforms will cover both the tender and auction aspects and allow suppliers who have passed the non-price evaluation be ‘rolled over’ into the final auction.

In summary, e-sourcing can bring considerable benefits to optimising purchasing costs. Certain categories will work well by simply running an auction, other categories will require a more detailed tender process and others will rely on more traditional purchasing techniques. By considering the criteria above, buyers should be able to make an informed decision.

Lisa Bryan is a director of e-sourcing solutions provider Select Sourcing Ltd. She has worked in the field of procurement for many years having ‘hands on’ experience in industry (private and public sector) and in consulting. She has been working in the emerging field of e-sourcing for the past 5 years. The team at Select Sourcing have delivered over 350 e-auctions and projects across a wide range of direct and indirect categories.

Article source: Expert Articles

Most Recent Articles in Negotiation category

  • The 2nd Secret That Negotiators Won't Tell You - Why They Object to Your Proposal - By: TK Chan
    Have you ever wondered why some people object to your proposal during the negotiating process and you are totally lost as to the reason why they do that? What if there is a truth in why most people behave that way and once the truth is unraveled, you would become much more effective in dealing with your negotiating parties in all situations?
  • Tips To Successful Business Negotiation - By: Nazeer Daud
    Successful business negotiation can be worth a great deal to your business. It can mean the difference between securing a contract and losing a contract, and has the potential to be worth untold amounts of money to your business.
  • The Mystic Art of Negotiation - By: Oscar Basurto
    IntroductionWhat is the reason, that we include a topic that may seem, completely materialistic? Because, life is also very materialistic but its foundations and principles are primarily, ethic and just. The negotiator, is not a merchant of the temple, because the things of the spirit, transcend any material value and cannot be bought.
  • If I Knew Being Brave Was So Scary I Never Would Have Tried It - By: Suzanne Freiberg
    I’m feeling really scared right now, not because I’m in a scary situation, but because I was brave and it was scary.In reality it was a little incident that brought me to this scary place; I had to assert my rights in a business dispute and request that someone else fulfill their obligations. Sounds reasonable enough.
  • Business Negotiation Tips For Small Business - By: Alexander Gordon
    Negotiations are things we do almost every day of our lives. However, many of these negotiations do not make much difference to us in the big picture, so we tend to take them lightly. However, when you are negotiating for the business as a small business owner, then it will be very useful if you follow the business negotiation tips for small businesses.
  • Persuasion Tactics in a Person-to-Person Setting - By: Michael Lee
    Persuasion is easier to apply during a conversation between two people, as opposed to communicating in front of a group. This is because in a person-to-person setting, the opportunity to better understand the point of view of the other party exists. You can nitpick and delve into every single detail, as opposed to speaking to an audience, where the interaction is usually one sided.
  • How to Read the Body Language of Buyers And Sellers - By: Michael Lee
    Nonverbal communication, otherwise known as body language, is just as important as the words that are being spoken in a conversation, particularly during a sales meeting or presentation. Professional buyers and sellers know this. They can tell when something is amiss or not right by studying the approach of the vendor or the client as he walks into a room and takes a seat.
  • Negotiation Occurs All the Time - By: Pj Germain
    By now you've been more aware of the times when you are in a negotiation with someone, whether it be a customer, co-worker, vendor, or someone at home. You've no doubt had one or two outcomes that were very different than what was available to you before the win/win training. You also probably had many negotiations that didn't result in win/wins, that went as they have in the past, or perhaps worse than usual as you tried new things.
  • 10 Points to Resist Rip Offs - By: Kurt Mortensen
    What might work wonderfully in one negotiation situation will not always be appropriate in another. The instant someone feels cheated, misled or taken advantage of, your opportunity to negotiate with her/him is over. Negotiation hazards tend to occur when you are taking a particular strategy too far.
  • What's the Difference Between a Negotiation, Arbitration, and Mediation? - By: Tristan Loo
    Negotiation. Involves two or more parties who are engaged in direct discussions with each other in a concerted effort of reaching an agreement. Both parties use persuasion and influence to get the other party to see things their way.