Market Informed Sourcing – moving forward, but too slowly (part 1)

Trade Extensions have launched a bit of an advertising campaign - here's their new brochure - and we’re pleased to see they’ve adopted the “Market Informed Sourcing” terminology to describe the advanced, optimisation based sourcing technology that underpins their platform.

We’ve written extensively about this process / technology, not least in two research papers we published last year .

Sourcing Optimisation – Extracting Value from Complexity

Market-Informed Sourcing: A game-changer for Procurement

I believe that this is perhaps the most significant “new” piece of intellectual property or process for procurement in the last ten years. Yet, if my recent experience is anything to go by, a large proportion of procurement professionals just aren’t aware of it and what it might be able to do for them.  Historically, one of the reasons for that was pretty much every technology provider with this capability called it something different – advanced sourcing, expressive bidding, optimisation... and so on.

While we can understand their desire to create a unique “brand”, the multiple descriptions confuse the market. And actually there is so much potential for use of the process to grow, we believe there is more logic for providers to look at getting a broad message across  and growing the market in total rather than trying to claim their own little corner of it with a specific brand name!

So we came up with “market-informed sourcing” (MIS) as the best description, and it’s good to see Trade Extensions using it – as do BravoSolution, at least sometimes.  (There are a fairly small number of other providers who are expert in this area – the main ones being probably Emptoris, CombineNet and Iasta).

Anyway, to recap what’s it is all about. MIS allows you to approach the market with a much broader and less specific requirement than usual, and invite potential suppliers to respond with a whole range of options and alternatives. The power of the MIS software them analyses the responses to give you the optimal solution. You can then play with the constraints, and run “what if” scenarios very quickly and easily before you select your final supply option.

So it differs from traditional category management in that the buyer needs to do less detailed upfront research to narrow down the options, in order to go to market – which often is a major part of the CatMan effort. The skill now comes in framing the MIS inquiry to extract the most interesting responses from the market, then in analysing the responses and looking at all the options which can be tested. It certainly doesn’t de-skill the procurement role – but it does change it fundamentally.

In terms of results, that freedom for suppliers to offer alternatives has led the early adopters of MIS to achieve some remarkable benefits, even where robust conventional sourcing / category management has been in place.  We hear reliable stories of 20, 30% savings on previously apparently well managed categories.

Now, it isn’t appropriate in every case – we need to think further about how it can work in the public sector for instance (although I’m sure it could) – but it will be effective in many cases. So we think every procurement professional worth their salt should ensure they’re familiar with the process and assess it for use in their own specific situations.

If you haven’t done that yet, we’d seriously suggest you start with reading the two papers we’ve linked to above. And in part 2 we'll look at some of the possible reasons why adoption has been slower than we think it should have been.

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