Supply Excellence — e-Sourcing: What it Takes to Woo Vendors

e-Sourcing: What it Takes to Woo Vendors

May 7th, 2007 · by Tim Minahan · No Comments · Supply Management 2.0 Forum, best practices, sourcing, supplier management

I’ve spent most of April traveling Europe — from the Iberian Peninsula to the Nordics to England. My discussions with supply management professionals there suggest that e-sourcing has a bad name across Europe.

First, there continues to be a general misconception among European supply managers that e-sourcing is a pseudonym for reverse auctions. (Which is untrue. See Why e-Sourcing is Good for Suppliers: Part I) Second, there is a widespread belief that reverse auctions are bad for supplier relationships. (Ditto.)

Consider how ITT Industries’ use of reverse auctions not only helped hold down costs in an inflationary market, but it also helped develop and improve supplier relationships. At the Supply Management 2.0 Forum in London, Jessica Dunlop, e-Sourcing and Strategic Purchasing Manager at ITT, told a packed room of U.K. supply managers how the use of e-sourcing in general — and reverse auctions in particular — enhanced the integrity of the sourcing process, providing suppliers with a heightened level of visibility of requirements, negotiation rules, and award-decision criteria.

“We spent a good deal of time ensuring clarity, integrity, and fairness in the sourcing process,” said Dunlop, noting that ITT encourages “losing” suppliers to debrief with her team so they can understand how to win future business. “Suppliers have been very excited about this process. Based on these meetings one supplier went out and invested in 10 new machines not just to win our business but because they understood it was the right thing to make their business more competitive over the long run. Another supplier did a joint venture in China.” And, yes, each of these suppliers were awarded business from ITT in subsequent sourcing projects.

But how do you transition suppliers (and internal stakeholders) from being resistant to e-sourcing and reverse auctions to embracing the concept? Dunlop says ITT has used the following techniques:

Spend a lot of time up front to get suppliers comfortable with the process and the tool. “Ensure you provide [e-sourcing and reverse auction] training for suppliers. Get them to conduct practice events. And [if your e-sourcing solution supports this capability as ITT's does] start by having them answer basic capability and profile questions to get them comfortable with e-sourcing without going straight to a reverse auction event.” ITT also places a strong emphasis on educating suppliers on the selection criteria and award strategy to ensure competitive (and sustainable) bids.
Find champions within suppliers that are open to technology. Dunlop notes that “the best champions may not always be the most senior executives. I’ve often found it good to have multiple contact points within the supplier and stakeholder groups: the senior executive to drive program support and the administrator or secretary to keep deadlines.”
Follow up with your suppliers during and after the sourcing process. ”We use gateways during the e-sourcing process to ensure suppliers are on board with the process and have a good chance of winning the business. If a supplier doesn’t answer a [required] question, we call them to ensure they understand the process and are still interested in competing for the business.” ITT uses these prerequiste gateways to ensure that suppliers agree to all conditions prior to the auction and to avoid any surprises or disputes after award. As noted above, ITT discovered early on that debriefing suppliers on why they did not win the business provides much-needed insight (and motivation) for self improvement.

In addition to these efforts, ITT also monitors all online sourcing projects to ensure that suppliers are negotiating with an equal level of integrity and fair play. ITT can now identify the “sour grapes” signs when a supplier is sniping or bidding just to drive the price down and sabotage the sourcing event. “We learned early on that we need to react quickly and bring that supplier in to explain the importance of competing fairly.” ITT has also adopted a “three strikes and you’re out” policy for violating suppliers. First violation results in an explantory meeting. Second-time violators are issued a warning and are put on a risk list. Third-time violators are cut out from bidding on any new business.

To learn how to detect when suppliers are planning to sabotage your e-sourcing intiative, check out the previous post, Dirty Supplier Tricks…And How to Avoid Them, based on the experiences Cadbury Schweppes presented at one of the 2006 Supply Management 2.0 Forums.

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