A few weeks ago we conducted a written interview with Ole Nielsen, the founder of the Danish e-sourcing provider Scanmarket. In 2008, Ole moved to Atlanta in order to increase the company’s presence in the American market. Before that, Ole had been living in Hamburg, doing the same for the German market, so he is particularly well-suited to discuss how e-sourcing has evolved in the recent past and compare adoption and use in different markets.
The interview is on the long side, so we’ve split it into two parts, the first of which is below. To see what Scanmarket has to say about themselves, check out their entry in the Spend Matters Almanac. They’re a Provider to Watch for this year, which means we’ll have a write-up on them soon. In the meantime, see what Ole has to say about e-sourcing.
Spend Matters: How has the use of e-sourcing changed in the 14 years you've been involved in the area?
Ole Nielsen: It's followed a very predictable hype cycle curve, from “hottest tool out there” to “We had an auction go bad once and gave it up” to “Hey, this really works.” It's still hard to fathom why something that works so well in so many circumstances has seen such limited adoption at many companies. That said, it means there’s still a lot of opportunity. We see e-sourcing as a discipline that’s ripe for significant growth over the next few years.
There are a number of growth opportunities. Focus on making it easy enough so that everyone who runs an RFP can do it online. Another goal is access for the middle market, as an increasing number of sub $1 billion companies are finding that the tools are cost-effective for their operations. Easier supplier discovery is also an opportunity, since new supplier discovery and qualification is the most time-consuming part of the sourcing process, with or without an “e.” As a well-known and respected industry watcher recently and publicly said, “When it comes to sourcing and auctions, there’s a lot of spend and savings up for grabs.”
SM: What is the legacy of Ariba/FreeMarkets today in these tools -- and their use?
ON: You mean besides the fact that every company is now staffed by Ariba/FMKT alumni? Seriously though, in the early days when we started Scanmarket, the tools were obviously simple. For example, our first online reverse auction was one-line only. As a result, it was only appropriate for a small subset of scenarios. As the functionalities improved, so did the number of sourcing scenarios where it was appropriate to use the e-sourcing tools.
We first saw auctions really take off in the retail community in Northern Europe. They were also the first to adopt some of the non-traditional auction formats such as Dutch and Japanese. It makes sense that it happened in an industry with traditionally thin profit margins. Ironically, there are parallel misconceptions that we frequently see in the market.
The first is that the tools are all too complex. This comes from users exposed to platforms aren’t designed to be so-called easy. The second is that the tools are not complex enough to meet the needs of a particular scenario. This comes from people who might have participated in an event back in the day when one-line events were all that was available.
SM: Why has adoption hit a brick wall inside so many companies?
ON: Two reasons. One has to do with providers and the other with practitioners.
On the provider side, many of the companies in the space loaded on so much functionality, complexity, and extras in an effort either to differentiate themselves or create add-on sales. The result was that the tools became too complicated for all but the most “super” of super users. While it's true that many successful e-sourcing programs use a COE approach, the real “Holy Grail” is providing a tool that everyone can use even if they only need it occasionally. Instead, occasional users avoid it like the plague and go back to their old Excel and email habits.
On the practitioner side, some are still focused on “selling” e-sourcing to internal stakeholders when mandates should have been put in place long ago based on the huge amount of value on the table. I can't see a CFO passing on so many EPS basis points if they really understand the potential impact. Put another way, you wouldn't tell employees: “Feel free to use our travel program if you feel like it.” You either use it, or you don't get a plane ticket or don't get reimbursed. Why? Because there are real savings, compliance, and visibility in getting everyone on board.
E-sourcing should be treated the same way. Want to buy something significant? Show me that you've competitively bid it, using our process and platform, and you're good to go. Our most successful customers are the ones who say, “This is just the way we do it.” I was speaking at a conference recently with someone who runs a very successful e-sourcing program in the pharma industry. When I asked why they put so much focus on e-sourcing, she said to me, “Well, with returns like this, why wouldn’t you?”
In the second part of this interview, we ask Ole Nielsen about how the US and Europe compare in terms of adoption and use, the role of marketplaces and search tools today in sourcing, what needs to be integrated with sourcing, and more. Be sure to check back!