More from CombineNet survey on ‘advanced sourcing’

CombineNet (see previous post here) recently released the results of a study on sourcing events using their self-service technology.  Jason Busch wrote two extensive pieces recently on the topic so I have shamelessly borrowed some of his material for this piece, as well as contributing some of my own thoughts.

The findings are perhaps the first we’ve seen that show how companies are adopting advanced sourcing / optimisation tools such as CombineNet, and how they are being used alongside ‘traditional’ sourcing tools (or indeed, not alongside). The results are based on data from 47 companies representing some 500 events, mainly from 2011.

(For those who aren't familiar with advanced sourcing/sourcing optimization, there are three Spend Matters papers that we recommend that you read on the subject: the first 2 from Jason and the third from me).

A Foundational Look at the Evolution of Sourcing Technology and Platforms

A Personal Lesson: Reaching the Limits of Reverse Auctions and Strategic Sourcing: When Collaborative and Quantitative Approaches Would Have Delivered More

Sourcing Optimisation -- Extracting Value From Complexity

Now, back to the survey findings.

CombineNet's analysis found companies using advanced sourcing tools across a wide range of spend categories and types, including for ‘smaller’ events (fewer line items). 22% of the events surveyed had fewer than 99 bids collected (33% of events collected 100-999 bids, 21% collected 1,000-9,999, 16% collected 10,000-99,000 and 8% collected over 100,000). And on another ‘size’ dimension, 48% of the sourcing events had fewer than 100 items per event put out for bids.

Until very recently, the traditional value and usage of the software focused on events with tens or hundreds of thousands of bids per event, and often similar numbers of items per event. This evidence that advanced sourcing tools are being used for much smaller events is a new and potentially significant development.

We're also interested in what types of expressive bid response formats customers are seeing. Across the sample set, 77% of bids included capacity or volume-based bid elements. CombineNet notes that "capacity can be collected at multiple the item level, at a 'group of items' level, or across the entire RFP. This ensures that the supplier can bid on as many business opportunities as they would like to win even if they can't meet the entire demand, and the buyer cannot over-award the supplier."

34% of bids included conditional offers. By CombineNet's definition, these are typically "proposals that enable suppliers to create percentage or dollar volume discounts on supply options. Conditional offers can include tiered pricing offers in the form of volume discounts. These can be applied across all items, tied to specific items, or scoped in other ways (delivery location, item type, business unit, etc.). Conditional offers can also include pricing offers for different items within the event, enabling the supplier to mix and match offers (such as growing business within an account by discounting incumbent items based on the award of new items.)"

In addition, 34% of bids included alternative bids from suppliers. By CombineNet's definition, alternate bids "are line item bids that enable the supplier to suggest changes in the original line item specification at the same or a different price point. This can include a difference in material type, service level, lead time, or other item attributes/characteristics." 16% of bids also included packaged bids, where "a discounted price can be offered when the package is awarded to the supplier."

As Jason says, and we agree,

In Spend Matters' view, alternative bids represent one of the most useful elements of advanced sourcing and optimization capabilities in a manufacturing environment (especially for direct materials, including "semi-direct" categories like packaging).

Another interesting statistic is that the fastest growth area appears to be indirect spend – up 15% in recent months.

In the final post in this series (early next week) we'll have commentary and analysis from both Jason and I. We'll look at what this data, and advanced sourcing and optimisation development generally, means for the procurement technology market and for practitioners.

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