MISing INACTION: Market Informed Sourcing Adoption Is Growing But It Is Still Low. Why?

We are pleased to bring you this insightful analysis from Garry Mansell, CEO Trade Extensions, world-class online sourcing and optimisation experts. Trade Extensions has recently launched TESS Academy -  a virtual training institution for users of its TESS™  sourcing and optimisation platform.

As one of the leading suppliers in the area of eSourcing and optimisation, or Market Informed Sourcing (MIS) as it is often referred to now, I was asked by our friends at Spend Matters to share with you some of my observations as to why adoption is relatively low and the technology is not used by everybody to source everything they buy if it is so revolutionary and produces incredible results.

Well, let me start by dissecting the question. Firstly, is MIS revolutionary? The answer has to be a resounding ‘yes’ simply because projects run today using MIS would have been impossible a few years ago because the technology did not exist. And secondly, does MIS produce incredible results? Once again the answer is ‘yes’ and companies really do save millions of dollars and improve service levels.

So, if we are broadly happy with the way the question is framed it does seem counterintuitive that adoption rates are relatively low. So why is this? As ever, it is multi-factorial but first let’s discuss a potentially limiting factor that is close to all buyers' hearts - price.

In many areas the price to use new technology is the first barrier to overcome but I'm pleased to say this is not as much of a barrier as it has been in the past. Back in 1999, when I was involved in running eSourcing events for some of the world's largest corporations, the 'going rate' for a major tender would be in the order of €250,000 – €300,000 per tender. Nowadays, clients who hold licenses to our software, and run project themselves, are in effect often paying less than a tenth of that price per tender. Considering these tenders are often for annual spends way in excess of €40,000,000 and the savings and additional benefits are in the orders of millions of euros the return on investment is clear to see. So, if price is no longer a barrier for these types of sourcing event why is penetration still low in relative terms.

Well, I think the question contains the answer itself i.e. 'for these types of sourcing event'. It's worth recognising that MIS is a tool and although it can be used to source anything, I am not of the school of thought that says is should be used for everything. It is simply not needed in many categories, some of which are perhaps better sourced using traditional negotiations or maybe a buyer may decide a basic reverse auction is the most appropriate.

The simple fact is the customer will decide when it is used and for what. They are ultimately responsible for the spend and the consequences of the decisions they make. As software providers and consultants it is our job to show what is possible and where MIS can be used most effectively. In our experience this tends to be complex purchasing for large corporations with the most common categories being logistics, MRO, packaging and labour.

The fact MIS is well suited to complex large-scale sourcing events with multiple data sources brings us quite nicely to the next barrier to entry we see regularly – namely a lack of quality data. This is not a new challenge for buyers but the availability of sound and accurate data concerning what their organisation buys, who from and how much they pay can be a real stumbling block when it comes to implementing MIS. The MIS software can’t create data where it doesn't exist but through the judicious use of easy-to-use spend analysis modules it can 'clean' the data and make it useable. The best MIS providers include this type of data examination and data cleansing functionality in a way that the outputs can seamlessly be used in any sourcing event so hopefully this barrier is also being eroded.

Another barrier that we are eroding all the time (even at this precise moment as you read this article) is that of a general lack of awareness. eSourcing and optimisation has only been around for, at most, 15 years and in reality what we consider MIS has really been available only for the past six years, so this is not that surprising. Awareness is growing and will continue to do so as usage increases but there is already a generation of buyers who have been using MIS techniques all their careers and new recruits into the industry will be using MIS platforms as a matter of course.

It is true the speed at which awareness levels increase can be greatly assisted by the adopters of the tools publicising their projects but the fact is this technology and its application really do give the early adopters a true competitive edge that they are reluctant to share. For companies like us it's a classic 'Catch 22' – we've made the technology so good and we want our customers to talk about it but, because it is so good, they'd be foolish to do so! From a perverse point of view I am happy with this since it proves the software is adding real value i.e. dollars, euros and pounds to our customers’ businesses. I also don’t envisage ourselves or our competitors raising awareness by spending small fortunes on promotions and advertising - especially when I look at the financial performance of some of our competitors and see them still making losses every year, sometimes ten and fifteen years into their company lives. Rather, I think our job is to continue to educate potential users via our industry, which in truth, as it is a niche industry, is perfectly manageable.

Education has also been key in overcoming another area of resistance, thankfully less common now than it has been over the years, which is the fear that MIS software would in some way threaten the jobs of buyers. In fact, a good adoption of this technology has the opposite effect. Buyers are empowered and informed by their use of this technology. They gain greater market insight and spend more time seeking and understanding their suppliers and less time running buying processes involving spreadsheets and email trails. The buying process is seen as being more professional, more transparent and it runs at a faster pace. Decisions are much better informed and alternative solutions are rapidly and easily considered. Stakeholders are more heavily involved and the awards made are much more robust and sustainable. In our experience, the best buyers want to use the best tools and MIS is currently the best tool available.

MIS maybe the best solution available but who is the best provider? That clearly depends on the buyers’ needs, but when choosing an eSourcing and optimisation platform for MIS, the tasks it needs to perform cannot be over emphasised. Optimising decisions considering millions, or sometimes in the case of the tenders run on our software, billions of data elements, is complex. This complexity has to be respected and software providers appear to have taken two distinct approaches to this. Some have decided to make their offering as user-friendly and intuitive as they possibly can, others have decided to offer consulting support in the use of the software to such a degree that the buyer may not even have to touch the software at all. It is important when choosing MIS software that the buying companies decide which of these two different approaches most closely fit their staff capabilities and availability.

So, in conclusion and to answer the question originally posed – it’s unrealistic and unnecessary for MIS to be used to buy ‘everything’ but it is here to stay and adoption is increasing all the time. The most significant adoptions and successes have been captured by the largest corporations and these organisations continue to develop their uses of the techniques. Adoption of the techniques will continue to grow in these organisations with many of our customers establishing their own centres of excellence, with a number of professionals trained to use our technology and maximise its capabilities. Supplying our software to these organisations has been the strategic direction that Trade Extensions has followed, and we will continue to do so. Many other clients have opted to use our technology via our trained and trusted partners from the business consulting world. These two routes to market will see the continued development of our own platform and in doing so will grow the market as a whole.

Smaller software providers entering the market are also growing the sector by offering more rudimentary optimisation technology to smaller users. This is undoubtedly a good thing and I am sure this sector will continue growing, as will the adoption and increased use of MIS by major corporations. The fact is adoption will progress at the pace dictated by the user, not the software supplier, and that is how it should be. We have seen our business double in size in less than three years, after a number of years of steady profitable growth. This indicates to me that MIS is now approaching or has reached its ‘tipping point’ and the next few years are going to be very exciting for all concerned.

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