Three Tips For Taking Advantage of E-Sourcing Tools in Today’s Volatile Markets

In a recent webinar that I participated in with CombineNet examining "Advanced Sourcing for Direct Spend in Volatile Markets", I provided three tips which are worth repeating here when it comes to leveraging technology -- e-sourcing technology to be specific -- to maximum advantage. Even though I hope the concepts are simple, they're not rudimentary, and some cases, they require a philosophical reorientation around the role of tools in the strategic sourcing process. If you have the time, I strongly suggest watching a replay of the webinar, as the feedback has been great. Regardless, these are some of the suggestions that I shared.

First, it's essential to explore how sourcing technology can help drive not only new negotiation models, but also new information discovery models. This may involve gathering as many price points as possible or it may involve understanding cost trade-offs (e.g., lead times, working capital, logistics, etc.) based on supplier capabilities and preferences. Regardless, it should signal a shift to using supplier information to get smarter about particular markets and commodities -- not just as simple inputs into an e-sourcing decision process.

The second tip I shared is the importance of learning to solicit, spot and explore the pricing and mispricing of different contract elements within an e-sourcing event. This is really the equivalent of sourcing "program trading" or an informed Blackjack betting strategy. In other words, if the mispricing of a risk or contract element occurs, you should pounce on it. As an example, this may involve exploring how suppliers' price different risk elements of a contract (e.g., the cost to hold pricing for 30 days vs. 90 days) and whether their pricing reflects a rational or incorrect understanding of the underlying supply market. Quite often, you may find yourself surprised at how suppliers will/will not react when asked to provide this type of information.

The third tip worth noting when it comes to getting the most from e-sourcing tools in today's volatile markets is encouraging suppliers to get creative with alternative material specifications (e.g., different alloys, substitute materials). This should involve, if applicable, exploring both external and internal (e.g., re-tooling) cost impacts on a total cost basis as a result of what a supplier may come back with. And it can also help you and your team to understand the direct costs -- yes, there are almost always costs -- to reducing one's overall dependence and risk on a current sourcing or production strategy or approach.

Jason Busch

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