Optimisation / advanced sourcing – changing the fundamentals of procurement?

Last week, we looked (here and here) at some of the findings from a recent CombineNet study of nearly 50 companies using its self-service advanced sourcing/optimization capability across over 500 different sourcing events in the past few quarters.

While that’s a fairly small sample size, it is likely to be indicative of what early adopters of this technology are up to, and also covers a pretty good range of customers and spend categories, across industries including FMCG, retail, transportation, etc. And it’s interesting to note that a number of the sample have gone straight to the ‘self serviced’ option i.e. they didn’t start with the managed service option form CombineNet or other providers.

The CombineNet press release is here if you're curious. But here are some of the observations -- and our extrapolations - that stood out for Jason Busch and I from the data itself:

  • Advanced sourcing/optimisation is appropriate for a wide range of categories; not just  transportation or the most complex tenders.
  • Companies are becoming comfortable with the notion of collecting dozens, even hundreds of bid attributes per event. Because the complexity of analysis is simplified by many orders of magnitude with solutions like CombineNet, (or Trade Extensions, Emptoris, BravoSolution..) the "maths" is done for you, provided you know how to build formulas and/or apply constraints.
  • Applying different constraints allows you to test all sorts of hypothesis and understand the dynamics of the supply market in a way that conventional tendering cannot.
  • (This is Jason speaking…) The curmudgeons in the audience (including myself) who originally wrote off advanced sourcing/optimization as just a feature of a broader sourcing suite will be proved completely incorrect as these tools change how typical buying organizations envision supplier engagement, negotiation, sourcing creativity and the broader procurement process itself.
  • The data shows that this new sourcing approach and philosophy can extend to smaller to categories of spend when given the opportunity. This in turn may make the notion of having a "basic" e-sourcing platform unnecessary if you also have a solution that enables advanced optimisation.
  • Some of the mega technology providers (SAP, Ariba, Oracle) need to decide if and how they're going to play in this space or risk getting left behind by Trade Extensions, COmbineNet, EMptoris, BravoSoltuion, Iasta...

Jason finishes his analysis with this good bit of controversy.

Perhaps the most controversial observation I'll make regarding the findings is … that this predicts the death of the reverse auction as a strategy. Rather, reverse auctions are likely to become a tactic used only in very specific supply market situations or when a company is looking to qualify suppliers or winnow down a supply pool in an earlier bidding round.

In addition, the use of CombineNet and similar tools, which enable market-feedback as a part of the advanced sourcing/optimization process, will blur the line between what an auction is and what it is not. But mark my words -- I believe that in less than a decade, we'll see the use of traditional sourcing events using basic reverse auction formats (including bid weighting) relegated to the backburner inside Global 2000 companies who learn to use advanced sourcing/optimization tools effectively.

I agree with him. But I’ll add my own bit of controversy; optimisation tools will change the nature of the Category Management strategies and process, and challenge the thinking that has become the dominant ‘orthodoxy’ for procurement over the  last 20 years. We cover this in more detail in our recent White Paper, and we have another paper on the way that will dig into the issue even further.

But what I first saw as ‘just’ another interesting bit of technology will, I now believe, change procurement fundamentally. So, as they say, be there or be square….

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