Whereas e-procurement tools promise to save time and money by improving the discipline and efficiency of the purchasing process, e-sourcing tools work by helping enterprises improve the way they identify and select products and suppliers. That may sound like a simple proposition, but it's not.
To meet manufacturing requirements, large enterprises often source thousands of parts and materials from a huge base of suppliers. Finding good prices is important but enterprises must also weigh quality, delivery times, volume, and flexibility. Saving money on a part doesn’t mean much if buyers can’t get that part in sufficient quantity or a high percentage of the final product turns out to be defective.
E-sourcing tools offer irrefutable benefits. Enterprises that use them reduce the costs of acquiring direct goods by 10 to 15 percent and reduce the costs of acquiring indirect goods by 20 to 25 percent, according to AMR Research. E-sourcing tools also reduce the time required to source materials by around 45 to 65 percent, and over a 12-month e-sourcing project, most companies can expect to cut lead times from about three months to six, says AMR Research analyst Pierre Mitchell.
Despite the promise of big cost savings, and predictions for rapid growth, the e-sourcing industry is still wet behind the ears. The market will grow from $350 million in 2001 to $1.8 billion in 2006, according to AMR Research. But many vendors have rushed to capitalize on the demand without coming up with tools that can meet the broad requirements of large enterprises.
Even so, many enterprises have started pilot projects, dabbling in select areas of their sourcing. This is an entirely sensible approach until full-featured integrated e-sourcing suites become available—something AMR said isn't likely for at least another 18 months. Using this approach may mean enterprises have a lot of homework to do though. Here’s an overview of steps business can take while they're waiting for e-sourcing tools to come around.
1. Analyze spending
Enterprises must figure out how much money is spent and where they spend it before they can identify opportunities to improve sourcing. Knowing how much is spent on different parts, suppliers, and categories is essential. It’s also important to know how much money has been spent against a corporate contract. Your enterprise’s spending categories will determine which sourcing capabilities you need and which vendors are most likely to satisfy your requirements. For example, if you are a discrete manufacturer that buys standard components listed on large bills of materials, applications from vendors such as i2 and Manugistics may be a good fit because they offer component supplier management capabilities.
2. Develop a sourcing strategy
Enterprises need to figure out whether to build vs. buy, how many sources are needed for a single part, and make innumerable other decisions. E-sourcing tools provide little support to help with such strategic analysis but some vendors can help with certain aspects of it. For example, for enterprises that need to identify and classify external suppliers, vendors such as Dun & Bradstreet, i2, PartMiner, Thomas Publishing, and WIZNET provide electronic supplier directories.
3. Evaluate sources and negotiate contracts
Enterprises use a couple of methods to evaluate and firm up specific opportunities with suppliers. Typically, this begins with a request for quote (RFQ) or a request for information (RFI), followed by bid analysis, then negotiation of the final contract. Because these processes are relatively easy to automate, they are well-supported by a variety of e-sourcing vendors including Ariba, Emptoris, Freemarkets, Moai Technologies, and major ERP and product data management (PDM) providers.
4. Monitor performance and compliance
Once contracts are signed the sourcing process involves making sure suppliers meet their commitments and monitoring their performance, for future sourcing decisions and contract renegotiation. To handle this part of the process, enterprises can turn to supplier relationship management (SRM) tools and supply chain performance management (SCPM) tools from vendors such as i2, Manugistics, Oracle, SAP, and other supply chain and ERP providers.
Enterprises that decide to make do with existing tools for select sourcing processes should still plan for change. AMR’s Mitchell recommends the adoption of a modular sourcing architecture to reduce the blips and inconsistencies that come with mixing vendors and applications. Vendors are still a long way from offering a complete range of tools to manage the sourcing process. But as long as companies carefully evaluate their opportunities and requirements, today's e-sourcing tools can provide concrete benefits.
Do you think active multichannel shoppers are an asset or a liability? E-mail Adrian or TalkBack below.
