Market Informed Sourcing – Where Next For Market Leaders?

Over the years of Spend Matters UK/Europe, we’ve published a huge number of briefing papers and the like, on a wide range of procurement topics (all available free to download on registration).

Some of my favourites have related to the topic of advanced sourcing / optimisation / or “market-informed sourcing” (MIS), as we christened it.

This is the process, supported by clever software, that allows users to run very complex procurement exercises with many different evaluation variables and options, often combined with a huge number of different price elements within the overall exercise.

So think of a logistics tender with thousands of different routes, plus constraints on quality, type of load, etc.  The mathematics behind the technology is fascinating, but its real beauty is in the way it enables suppliers to offer different alternatives yet also allows the buyer to carry out an objective analysis of the proposals and choose the optimal solution.

When we started writing about this some 6 or 7 years back, there were two specialist firms who provided MIS software that could do this, Trade Extensions and CombineNet, and two that had capability as part of a wider suite of products (Emptoris and BravoSolution).  We then saw Trade Extensions outperforming their competitors – BravoSolution focused perhaps more on other aspects of their portfolio, Emptoris faded and then died as part of IBM, and CombineNet lost some traction (in Europe certainly). A new Irish upstart came along – Keelvar – but it remained a pretty tight market.

It’s just over a year now since Coupa bought Trade Extensions, and with Jaggaer’s acquisition of BravoSolution, the same firm having bought CombineNet back in 2013, there are now two giant firms in this space plus Keelvar, still independent.  So it is going to be fascinating to see if having the power of these two market leaders behind MIS will see more organisations adopting it – we would hope so.

We’re also likely to see some of the principles behind these tools incorporated in more day-to-day sourcing technology, we suspect. But there are challenges; users need to be educated, even if this software is easier to use than it once was, and the salespeople charged with selling it need to know enough to make the pitch! You don’t need to be a Maths graduate to explain it, but it’s a bit more complex than explaining spend analysis. And even once the sale is made, user organisations can regress quickly - capability can decay or if a key user leaves, MIS projects can simply disappear.

Anyway, we will be talking to both Jaggaer and Coupa shortly and this will be one area where we suspect there will be some interesting comments. In the meantime, here are excerpts from the first couple of papers we wrote on this topic  – with links if you want to read more.

 

Sourcing Optimisation – Extracting Value from Complexity

(Spend Matters UK/Europe paper for Trade Extensions - download here)

 What makes a procurement requirement complex?

Complexity can come from a number of different factors. In the example of my holiday decision above, the sheer number of potential suppliers is part of that complexity. So in terms of the number of ‘suppliers’ of hotels for instance, there must be hundreds of thousands globally. Then we have the different combinations of suppliers; as above, do we buy a package or the elements separately? Or there may be intermediate steps; I could buy the air fare and hire car from one supplier, a hotel and some excursions from another. There are literally millions of options.

A further complexity would come if I had to take the wishes of several travellers into account. If I’m organising a ski trip for my old college friends, they may be travelling from different airports. If it is a large party, some may want to stay in a self-catering apartment while others (the bankers perhaps) want the best hotel in town. At this point, we would probably give up and go for a lie down in a darkened room.

Yet this is all trivial compared to the issues and options faced by large organisations when they look at their own procurement and sourcing options. While some of the factors that cause complexities are similar to those that our holiday planner faced, they can be on an even larger scale, and there are some further complications. But just as this complexity provides practical barriers in terms of making decisions in the best possible manner for the organisation, then it also provides great opportunities in many cases. We’ll look at the positive outcomes that are possible when the whole range of alternative supply options can be considered in a structured manner in the next section.

 

Market-Informed Sourcing: A game-changer for Procurement

(Spend Matters UK/Europe paper for BravoSolution - download here)  

…  we also suggest here that Market-Informed Sourcing is the most significant development in core procurement practice since category management. As such, it can fulfil some of the perceived gap that has been much discussed recently; that of the ‘next big thing’ in procurement.

Market-Informed Sourcing does not replace Category Management, but it changes the fundamental nature of the strategic sourcing process and requires a different approach and process to be adopted by buyers. Market-Informed Sourcing allows the procuring organisation to open up options to the market, instead of narrowing down the defined requirement, which is the core of traditional Category Management. That enables the market to reflect back true economic factors in a manner that benefits the buyer. So the three key messages of this paper are:

  • Market-Informed Sourcing does not replace Category Management, but it changes the fundamental nature of the CatMan / strategic sourcing process and requires a different process to be adopted by buyers
  • MIS allows the procuring organisation to open up options to the market, instead of narrowing down options which is the core of traditional CatMan. That enables the market to reflect back true economic factors in a manner that can benefit the buyer.
  • Market-Informed Sourcing is the most significant development in core procurement practice since Category Management

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