Selecting an eSourcing Toolset – How to Match Your Strategic Requirements to Technology Offerings

We are pleased to bring you another post on our eSourcing hot topic this month from Dr Alan Holland, Founder and CEO, Keelvar - sourcing optimisation and advanced eAuctions specialist.

As a vendor of eSourcing tools we’ve seen customers manage their selection of eSourcing tools well but we’ve also seen it conducted poorly. We’re a company that likes to be precise about things and to paraphrase Lord Kelvin, what cannot be measured cannot be managed. To support a structured approach to selecting an eSourcing Toolset it is important to have a methodology that matches an organisation's needs to those tools. There are many vendors in the eSourcing space so it is easy for buyers to be confused by the choices. But all too often buyers revert to using a lengthy checklist of mandatory features that leads to a phenomenon in Enterprise Software known as “feature bloat.”

Vendors feel they need to have longer checklists of features to win business so expend less efforts on improving those 20% of features that are used 80% of the time. Both sides can lose out if such buying patterns persist, so we are suggesting an approach that is more systematic and measurable.

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It is important to first assess the nature of the sourcing events that the organisation is conducting. The most important dimensions to consider are Competition and Complexity. By measuring these aspects of a sample of recent sourcing events conducted it is possible to produce a clearer picture of the appropriate sourcing strategies required and thus the types of tool that can add most value in eSourcing exercises.

This technique can form a guide to a) categorising sourcing strategy planning and b) defining the eSourcing tools needed to realise best value for money. The following aspects are critical in selecting a sourcing strategy:

  • Competition: In events with few competing suppliers, a strategy of negotiating long-term deals with one or more of those suppliers in order to achieve some leverage in negotiations is preferable. Security of supply trumps economic efficiency given that over time a monopoly situation could develop and as a buyer you need to ensure long-term supplies. When there is a moderate level of competition then an RFX is typically chosen but when competition is intense and suppliers are easily interchanged then an eAuction may be selected.
  • Complexity: for large enterprises there are often large or complex requirements with bidding patterns exhibiting complex business constraints. Some suppliers are keen to communicate either economies of scale or scope with package bids and contingent discounts or diseconomies of scale or scope. Diseconomies of scale could include a maximum capacity limit. Such complexity needs to be embraced rather than ignored as it hides opportunities for savings. In such cases optimisation tools can add enormous value so if there are events that fall in this category it is important to have such functionality.

Grading competition and complexity should follow uniform guidelines across all events. For competition, it may be something as simple as a count of the number of suppliers within a specific percentage price range from the winner. The measurement of complexity should address whether there are distinct regions, differing supplier footprints across regions or product lines, cost synergies, spend volumes exceeding $5 million, multiple buying parties etc. Once a sample of previous events has been analysed, then a scatter plot starts to paint a picture of an organisation's sourcing needs. The background colour coding in each graph indicates the types of sourcing technique best adopted. The layout of this pattern can also be tailored to an organisation's view on where boundaries lie.

Current View of eSourcing Tool Landscape and strategy to be applied to each event (marked as dots)

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The next step is to take a weighted view on the importance of each event in terms of spend volumes. Some events are trivial and of low value whilst others may have huge spend volumes associated with them.

Weighting by spend volumes gives a clearer picture on strategic priorities

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From the bubble chart above it is clearer that eAuction spend volumes are small so it makes more sense to invest in RFX and Optimisation functionality as this is where spend is heavily weighted. This graphical high-level Needs Analysis now informs buyers of eSourcing tools where they should invest. It may also help them understand whether one, two or more tools should be selected because there is another canvas of sourcing capabilities to serve these need.

In Keelvar’s case our specialism lies in the red and yellow sectors that offer optimisation for RFX and eAuctions. So all our clients have decided that combining standard RFX and eAuction tools with Keelvar best serves their particular needs. The process for matching vendor capabilities to Needs Analysis is the next important step and this too can also be captured graphically. We will address that in a follow-up article.

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