Scanmarket’s Ole Nielsen on E-Sourcing Adoption in the US and Europe, Marketplaces, and Failing Customers
On Monday we published the first part of an interview with Scanmarket’s founder, Ole Nielsen, who spoke at length about e-sourcing adoption. If you’re not familiar with Scanmarket, it’s a Danish e-sourcing provider that is on our list of 50 Providers to Watch this year. In this second half of the interview, Ole compares the US and Europe in terms of e-sourcing adoption and use, as well as the role of marketplaces and search tools in sourcing and much more.
Spend Matters: Could you contrast the US and Europe in terms of adoption and use today?
Ole Nielsen: The biggest difference we see is a broader adoption and acceptance of auctions in Europe. Online reverse auctions, while used broadly at many companies here, have something of a bad rap in the States. In Europe, most of our customers use them frequently on all sorts of products and services. The reason could be that there is a broader selection of local platforms in Europe. Most of them have been more focused on ease of use, compared to Ariba, who up until 2010 has been holding on well to the US market. However, the trend in the US is that more companies are seeking best-of-breed solutions, instead of cumbersome platforms that won’t generate user adoption.
We’re seeing a significant increase in the use of Japanese auctions in Europe. The technique can be perceived as less aggressive than a Dutch auction and it can also be used with a smaller bidder pool. We’re also seeing repeatable auctions on direct materials, especially in the retail and food industries. One of our grocery customers runs multiple auctions each Tuesday on their fresh produce needs for the following week.
As often so happens, there is a difference between Northern and Southern Europe. We see stronger adoption in Northern Europe for a couple reasons. First, there’s a generally higher level of cloud and Internet adoption in the North. Second, the business cultures in Southern Europe are less focused on open competition and more on existing relationships and buyer-supplier ties. We see many European companies focus their sourcing efforts on a country-by-country rather than continental basis. Some of this is due to local preferences and language. While this can mean smaller bids, they can also be turned more efficiently and quickly and supplier discovery can be done from a smaller pool.
SM: What are you seeing with the use of auctions vs. other formats?
ON: In the interest of full disclosure, I'm an auction zealot. I think that they should be used whenever possible. That said, it's important to remember that an auction is just a way to negotiate final pricing and is one step in the process. It works well where it's appropriate, and not so well where it's not. Frankly, I think much of the rancorous debate about auctions is a bit overblown and misguided. With today’s e-auction modules, very complex negotiations are now possible and can include almost all variables that you could think of.
SM: How have providers failed customers?
ON: A lot of providers have not been focusing on ease of use when implementing functionalities into the platform. When you ask a highly skilled software engineer to come up with new cool stuff, you end up with a platform that for most users is too complex. You have to bring the users on board when developing software, and then combine the strength of skilled engineers and the average computer user. Too many providers have left the users outside the meeting room when developing the platform, as a result failing to deliver easy-to-use platforms with high user adoption.
In Europe, one of the things we’ve seen that has really boosted adoption (in addition to the expected sponsorship, training, and so forth) is the gradual ramping up of functionality for new users inside an organization. For a new user, so many bells and whistles can be overwhelming. Instead, some administrators are building in a “functionality calendar” where they will start a new user with the simplest version and then layer in things such as advanced scoring and bid matrices as the user gets more comfortable. At the end of the day, it’s all about making the system easy enough that people will actually use it rather than overwhelming them with options.
SM: What is most important to integrate with sourcing today?
ON: The sourcing process is the most important thing to integrate into the sourcing tool. E-sourcing has to be part of standard operating procedures. You wouldn't do a budget without Excel, so don't do an RFP without e-sourcing. This works not just for category managers or COE personnel but also for frontline users in smaller events. By keeping the process easy and simultaneously mandating use, you can get to the point where you’ve got more bids going through the system, puling along with it the benefits in savings, efficiency, etc. For technology integration, I don't really see the need to spend a lot of time and money integrating the e-sourcing tools back into your ERP. It’s more something that’s nice to have.
SM: What is the role of marketplaces and search tools today in sourcing?
ON: Google and other free marketplaces are great for sourcing. There is absolute no reason to pay money for searching for new suppliers in today’s world. However, you need to qualify the leads you get from your search, and it’s often a good idea to outsource that function. You can’t solely trust the data you get back from online searches and marketplaces, so use your e-sourcing platform to qualify the leads from your search, and then spend an hour meeting those who qualified for the RFI process.