Supply Excellence — e-Sourcing: It Ain’t All About Reverse Auctions

e-Sourcing: It Ain’t All About Reverse Auctions

August 11th, 2006 · by Tim Minahan · No Comments · sourcing

Juding by the number of comments and e-mails I’ve received, my recent posts on the myths of e-sourcing sparked must have touched a nerve. (A reaction I anticipated after how a group of wary suppliers responded to this content during my presentation last week.) One Supply Excellence reader comment I felt required further clarification was “…when did e-sourcing become a synonym for reverse auctions?”

This is a common misconception – one, unfortunately, that is perpetuated by both uninformed suppliers and veteran buyers concerned about the discipline and accountability that e-sourcing instills in the process.
To be clear, e-sourcing is not a euphemism for reverse auctions. Instead, auctions are just one flavor of negotiation types available on the e-sourcing menu. Other negotiation types include electronic RFI, RFP, RFQ, sealed bids, transformational bidding, flexible or expressive bidding, and optimization. (There are also a range of auction types as well, such as English, Dutch, and Asian or “parallel trading.”) And, as stated in the previous post, nearly all e-sourcing projects utilize multi-threaded or iterative negotiations, moving from e-RFI-to-e-RFx, etc.

In fact, my experience with hundreds of e-sourcing users has shown that reverse auctions are the least used of all online negotiation types. Case in point: The Fortune 50 Company hosting the event at which I presented last week sourced more than $500 million worth of goods and services online in the past year. More than 90% of those sourcing projects did not involve reverse auctions.

Similarly, KLM Royal Dutch Airlines runs hundreds of sourcing projects via its e-sourcing tool each year, only a handful of which involve reverse auctions. When presenting at the Supply Management 2.0 Roadshow earlier this year, a KLM supply management executive said, “Executing an e-auction will never be our goal. A supply management project can only under specific conditions be comleted by a reverse e-auction. KLM professional buyers should not explicitly be trained to act as ‘e-auctioneers’.”

It is also important to note that negotiation itself is only one area of functionality supported by an e-sourcing platform. It is also only a small portion of the strategic sourcing process. Time dedicated to negotiation accounts for less than 20% of the overall sourcing process. The bulk of sourcing efforts come pre-negotiation (e.g., requirements development, market assessment, supplier identification and qualification) and post-negotiation (e.g., decision analysis and award allocation). These activities largely determine the success and total value derived from any form of only negotiation.

A more apt definition of e-Sourcing is the use of Web-based applications, decision support tools, and associated services to streamline and enhance strategic sourcing processes, determine best-value supply relationships, and advance knowledge management. In addition to the above negotiation types, leading e-Sourcing solutions include collaboration, project management, document management, knowledge management, and analytical capabilities. Solution providers are further differentiated by their ability to deliver sourcing expertise, methodologies, and services.

(For a detailed dive into functional attributes of e-sourcing tools, download the e-Sourcing RFP Template, based on industry best practices culled from actual RFPs and consultations.)

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