eProcurement Excellence – More Savings in Half the Time
Innovation in technology over the last two decades has propelled eProcurement to a critical point in the effective purchasing of goods and services. However, many organisations are still failing to harness the full power of this effective tool.
What is eProcurement?
The term ‘eProcurement’ covers several different points within the procurement process that are designed to support organisations in their purchasing.
Complexity varies; the use of eAuctions and eTendering can be implemented to create relatively quick solutions whereas systems such as ‘Source to Contract’ and ‘Purchase to Pay’, which integrate into wider enterprise solutions, require more strategic direction in terms of Business Process Optimisation.
Specifically, eAuctions and eTenders (which include Request for Information, Request for Quotation, Request for Proposal etc.) provide the purchasing organisation with the ability to run a more competitive, efficient and auditable process.
Significant benefits are achievable when eProcurement is used effectively:
- It facilitates a more competitive environment which results in an increase in savings from traditional ‘paper based sourcing’ of between 4-7%
- Speed to market is improved; the turnaround for an eTender can cut the sourcing cycle time in half
- It provides a fully auditable process
- Repeatability – having set up and run eTenders, organisations are then able to simply repeat the tender as and when required
- It allows for some elements of supplier assessment to be automated
- Respondent progress can be easily tracked
- Questions/requirements can be tailored to different response types. For example, numerical, yes/no, attachments etc.
When to use eTenders
Procurement platforms are now more flexible than ever, making eTenders suitable for sourcing in all spend categories. The flexibility derives from a procurement platform’s ability to allow different response types, providing the purchaser with the option to tailor the tender to the spend category requirements.
There are now only a limited number of situations where eTenders would be unsuitable. For example, when there is a monopoly in the market place or there is only one suitable supplier. In these instances it may be more effective to facilitate an open dialogue in order to achieve the best outcome.
When to use eAuctions
eAuctions are a useful tool of negotiation and should be used as part of a process including an eTender. They differ in that they are only suitable in scenarios where all of the following are applicable:
- The opportunity is commercially attractive to suppliers
- The requirements are definable
- A competitive supply base exists
- A real savings opportunity exists
It is often reported that eAuctions are only suitable where the complexity of the goods or service is low; for instance IT peripherals, engineering consumables or stationery.
However, this is not always the case. Goods and services conventionally believed to be unsuitable, such as Creative Marketing, can and have been successfully auctioned in conjunction with a wider sourcing strategy.
Running a successful eAuction
There are tactics which purchasers can employ to ensure a successful eAuction:
- Creating a competitive environment; for example, auctioning the total price or subcategories of pricing
- Informing all involved suppliers on the process at the beginning of the exercise
- Ensuring competitive first offers are received by shortlisting after the eTender
Similar to eTenders, an eAuction is not suitable where there are only a few interested suppliers, as this would mean that their bargaining power is much higher which can sometimes result in a price increase. In this instance, a form of direct negotiation would derive a more effective outcome.
eAuctions may also not be suitable where a performance specification is used to define the requirement. The outputs proposed by each of the suppliers may be quite different and so not comparable. However, it could be possible to auction certain aspects of a proposal which can be directly compared, such as a supplier’s rate card.
Addressing the barriers
Specific barriers need to be addressed in order to run a successful eAuction:
- Suppliers adjusting pricing in anticipation of an eAuction
- The risk of damaging a supplier relationship
- Supplier reluctance to participate
A commonly perceived problem for eAuctions is that suppliers will initially submit inflated pricing. A way of tackling this is to shortlist suppliers following the first submission of pricing. This way you are creating a level of competition, incentivising suppliers to be competitive from the outset.
Correctly there is also a concern that eAuctions can damage a supplier relationship. It is important to condition suppliers, keep them informed on the process and what you are trying to achieve. This engagement allows them to understand why you are using an eAuction and what they need to do to be successful.
Suppliers can often be reluctant to participate in eAuctions. Again, conditioning and engaging with suppliers means you can inform them of the benefits. These include a quicker turnaround time if successful (in comparison to traditional methods of negotiation) and an ability to understand their ranking within the marketplace so that in the future they can address these areas and become more competitive.
Points to consider
- eProcurement enables faster, more competitive sourcing activity – more savings in half the time
- There are very few situations where eTenders cannot be used – they should form a key part of your sourcing process
- eAuctions are a useful tool and should form part of your sourcing toolkit
- There can be challenges but, with careful set-up and structure, these can be overcome
1 Sourcing Progression, Part 3: E-Negotiation Vendors and Results, Mickey North Rizza, April 2006