Buyers typically focus on a few key objections to avoid the E-Sourcing process, even with its potential for savings and the promise of a condensed sourcing timeline:

• “It will destroy my relationship with the supplier.”
• “The service, quality and support my supplier currently delivers will suffer.”
• “My supplier’s profitability will be depressed to the point of no return, and they will return for price increases or simply become unsustainable.”

A few recent studies have indicated that opinions on both the buyer and supplier sides are evolving, and warming to the E-Sourcing process - showing that E-Sourcing is no longer the least desirable tool in the box. And as The Chartered Institute of Purchasing & Supply (CIPS) points out, organizations have little reason to reject the E-Sourcing process and opportunities, evidenced by their 7 Effects of E-Sourcing:

1. Transparency - Both sides win on transparency in an E-Sourcing event - suppliers see fair market price that doesn’t have to be validated by a buyer. While the buyer sees fair market pricing and can determine supplier’s sustainability based on price or whether it’s the right time to source.
2. Publicly visible online event - A level playing field introduced to the supply base where an apples to apples comparison is forced by the process. The integrity of the process is indisputable as a third party executes the event, leaving the supplier and buyer focus on managing their relationship rather than price.
3. Enables multiple rounds and bid adjustments - E-Sourcing events allow the supplier to bid multiple times and to receive market feedback quickly. This leads to process efficiency, which eliminates the lengthy manual negotiations, communication gaps, and lends back to the transparency effect.
4. Broader geographical reach - E-Sourcing allows suppliers from multiple regions to participate, without a language or time barrier.
5. Suppliers learn their limits - An online event encourages suppliers to quote responsibly in order to cover gaps and keep profits in line. It is more cost effective to keep the current customer vs. winning a new one.
6. Defined specifications - The process forces buyers to clearly define the specification and thoroughly qualify the supply base. The supplier qualification process is still stringent and in place when engaging the E-Sourcing process, which ensures that the event is about more than ‘best price’ - participating suppliers must prove to have the best quality and product as well.
7. “Darwinism” of the supply base - This is perhaps the most convincing reason of all to utilize E-Sourcing. Natural price tension supplied by the market during an E-Sourcing event forces best price and suppliers to then understand how to reach best cost and maintain profits by trimming organizational and process “fat”. Based on an Oracle E-Sourcing survey, E-Sourcing has actually proven to help increase margins for some suppliers. After reducing margins in a competitive bidding event, they are forced to look deeper at their processes to close gaps. This has led to process efficiency and increased margins even above and beyond what they were prior to the auction event. The advantage is that those suppliers have the chance to apply the same efficiency on other customers as well.

Oracle recently published survey results on this Darwin effect. The survey included data from 500 completed E-Sourcing events and over 2,500 data points. The research explored changes in several different factors, including: Quality, Delivery, Flexibility, Account Management, and Dependability. Buyers were asked to rate on a scale of 1-100 (50 being break point, or “no change”) how supplier performance was affected by E-Sourcing. The results (see page 37):

• +22 - Suppliers increased flexibility (or 78/100)
• +20 - Product or Service Quality (or 80/100)
• +12 - Delivery/Reliability (or 62/100)
• +8 - Support (or 58/100)

Suppliers were also asked for input on the process following an event. The results showed warm feelings from the suppliers, and indicated that buyers should drop the suspicion that suppliers always equate E-Sourcing with negative thoughts:

• ~ 60% of the suppliers stated they “welcomed the transparency” granted in e-sourcing activities
• ~ 80% of suppliers also thought they were awarded business after an e-sourcing activity on more than just a price factor

By understanding the full spectrum of benefits provided - beyond simple cost savings - as well as the truthful supplier opinion surrounding the E- Sourcing process, E-Sourcing should quickly become the most desirable tool in a sourcing professional toolbox. The above results don’t indicate a lack of negotiation skills on the purchasing side, nor do they discount traditional negotiation strategies. We can look at the results though, and understand that E-Sourcing reveals opportunities for improved supplier performance and market price visibility - and in the end, stronger relationships on both sides of the coin.

Allison Earnest is a Consultant in Ariba’s Spend Management Services group. Allison is currently focused in the automotive/OEM sector; advising the strategic use of procurement and spend management software for direct materials.

Erez Azaria is a Senior Consultant in Ariba’s Spend Management Services group. Erez specializes in working with automotive manufacturers on strategic sourcing events.