In the first installment of this post, I considered the applicability of lower-end sourcing tools and when they’re most likely to be a good fit for organizations and under what scenarios. Today, as I continue this analysis, I’ll take the other side of the argument focused on when these tools can even do more harm than good, starting first with one of the biggest issues with e-sourcing technologies in the first place – the most valuable features all-too-often sit on the shelf, rarely if ever to be used by procurement organizations.
Advanced sourcing capabilities do not just enable better analysis post-bid – they can change how a procurement organization approaches a category in the first place, changing the sourcing mindset from one of negotiation to information discovery (see related links to our sourcing research at the end of this post). Yet too many organizations are still in a colloquial “reverse auction” mindset, a thorough process that dictates that they know more about how to structure a bid than the market does. These companies, many of which now have access to better sourcing tools that can enable complex bid collection (which evaluate different options that can include order size, different bundled options vs. static lots, etc.) and analysis, still think they can outsmart the market by creating their own lot structures.
Granted, a true sourcing pro may be able to do just this is she is truly aware of current supply market conditions, vendor capacity and other variables. And for simple bids, straightforward negotiations, even those that begin to take into account non-price factors, have a place in many smaller sourcing events.
But for truly strategic spend and sourcing efforts that involve any type of larger sourcing decision impact, look to Peter Kraljic’s upper right quadrant (and even to some degree the upper left and lower right). These models will often sub-optimize the implementable and sourcing lifecycle for an exciting bid day result that shows an optimistic line-level and lot percentage outcome.
Where do everyday basic sourcing tools tend to fall down besides failing to offer stronger bid collection and award scenario analysis capability? Check back for the next part in this series.