Having an ERP System Doesn’t Mean You Know How to Source

Spend Matters welcomes a guest post from Patrick Hunter, Senior Vice President, Marketplace Operations at MFG.com.

A common myth in today’s sourcing world centers around ERP systems. Nearly 80% of the business world believes that with an ERP system, anything is possible, especially when it comes to sourcing. Many experts feel that purchasing and sourcing are synonymous.

This is the first mistake. ERP systems are about managing the flow of purchase orders to suppliers to ensure there is enough inventory to meet manufacturing build requirements. Additionally, they provide future purchase requirements based on consumption and help manage the cost of goods. Essentially, ERP systems make sure that an organization’s production line continues to operate.

This may be selling an ERP system a little short, but not by much.

Sourcing is a completely different animal than purchasing tracked through an ERP system. It focuses on the individual needs of the part or product. Purchase orders and price are components of the sourcing process, not the whole process. Sourcing involves finding the right supplier with the right capabilities, quality performance, and attitude that best suits your organizational needs. These attributes in addition to price are what make the right sourcing fit. Sourcing is the tool to use for finding the best overall value for the organization.

Now that we have that out of the way, we can talk about how you can leverage eSourcing tools to help make an organization more efficient. Surprisingly, many Fortune 500 organizations still run their sourcing activities using paper-based tools or spreadsheets. The remaining ones don’t use any tools at all. While this may be sufficient for a one-man show, cloud-based solutions are scalable and can allow organizations to be much more efficient and effective.

Today’s eSoucing platforms provide you with supplier management functions, asset tracking, certification tracking, project management, and sourcing all wrapped up in one. These tools help an organization better utilize the skills of their team by allowing them to do more with less; which is the motto of purchasing organizations already, right?

These tools can help organizations meet supplier diversity and cost reduction goals, and ultimately create competitive advantages over their competition (who will still be using spreadsheets). The first advantage that comes to mind is an efficient process for market based quoting, which doesn’t just mean auctions. A powerful eSourcing tool will have a sourcing module that enables the users to engage both existing and new suppliers to quote on their projects. By creating open competition, we know that we will receive the best market price. Sourcing professionals can easily locate the right supplier with the right capabilities to quote on the parts. This is where spreadsheets break down really quickly. Being able to locate multiple supply options and engage seamlessly helps a sourcing professional save time, money, and headaches.  You can use the tool to have suppliers submit quotes, review terms and place orders. This feels a lot better than using spreadsheets and emails, right?

What do you need to remember from all of this? Just because you have a fancy ERP system does not mean you are sourcing efficiently. If you want to set your organization apart from the rest, start investigating how to use eSourcing platforms. The management team won’t know what hit them. eSourcing allows strategic sourcing to be strategic again.

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Voices (3)

  1. Dan Ashton:

    Effective and efficient esourcing solutions can be found in point solutions or as part of an ERP system. To apply a broad brush to all ERP systems is like saying all trucks are inefficient compared to cars, not true. ERP only managing the flow of purchase orders is an outdated viewpoint and not in line with the powerful capabilities and connectivity provided by today’s ERP applications. As Levon pointed out you have to use the tool properly whatever it is. Some ERP esourcing solutions offer superior usability and functionality over some esourcing point solutions.

  2. Levon Hovsepyan:

    Having a fancy and super modern car does not mean you can drive it. You need to first learn how to drive, differentiate traffic signs, etc.
    The same is with ERP, it’s just a tool, a mechanism, but never an ultimate knowledge. Great post, thank you.

  3. Navdeep Sidhu:

    ” Just because you have a fancy ERP system does not mean you are sourcing efficiently.”

    What’s the point of having a tool if you don’t know how to use it effectively? I can only imagine how many ERP systems aren’t being utilized to their full potential simply because their users don’t actually know how to get the most out of it.

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