As a concept in procurement, sourcing optimization is nothing new. In fact, it first emerged almost two decades ago as a process that combines a sophisticated form of mathematics with computer technology to analyze large numbers of bids and seek out the ‘optimal’ or most cost-effective supplier or carrier when given a set of resources, cost, quality or time restrictions.
But while sourcing optimization may have initially been considered a niche, “advanced” e-sourcing tool primarily aimed at the largest, most difficult spends to manage (and therefore large quantities of data to crunch), both the evolution of technology and the challenges facing sourcing professionals have come a long way since the early 2000s.
What then is holding sourcing optimization back from becoming a mainstream solution for procurement teams worldwide? After all, upon adopting sourcing optimization, most teams report new savings after their first bidding event, improvements to their process best practices and even enhanced supplier relationships. Yet as Ardent Partners reports in its 2021 annual report on The State of Procurement, only 20% of 351 procurement executives interviewed report using sourcing optimization currently.
Some sourcing professionals still believe sourcing optimization is either too complicated or unnecessary for their requirements, often preferring to stick to basic e-sourcing software or desktop tools for their negotiations. For others, sourcing optimization is still viewed as a solution that is only really suitable for specific categories, such as transportation. As a result, many teams are feeling stuck; they're using the same tools to confront new constraints and difficult challenges, and they're not getting optimal results.
With that in mind, in an April 2021 webinar members of the Keelvar team set out to challenge some of the most common assumptions about sourcing optimization and e-sourcing tools, provide recommendations about its implementation and rollout, and discuss sourcing optimization’s proven benefits for a variety of spend sizes and categories including packaging, indirects, logistics and direct materials.
Read some of the top takeaways from our expert panel discussion during the webinar ‘Is Sourcing Optimization Ready To Go Mainstream? below:
1. Sourcing Optimization Has the Biggest ROI of Any Procurement Technology
With cost-saving measures high on the agenda and an abundance of new technologies on the market aimed at streamlining sourcing practices, the return on investment of a solution is a vital metric for any organization weighing up the benefits of introducing an update to their sourcing tool arsenal. Not only does sourcing optimization afford benefits that are simply not possible using legacy systems, it also has possibly the highest ROI of any SaaS solution that a procurement team can purchase.
As explained during the webinar, sourcing optimization has a generous ROI for customers in terms of savings when compared to other e-sourcing software: “In almost every case, the first sourcing event that they conduct utilizing a sourcing optimization technology, it will more than pay for the entire subscription of the tool.”
2. Sourcing Optimization's Efficiency and Automation Far Surpasses Spreadsheet Comfort
With their ease of use and versatility, spreadsheets will always have a role in the procurement workplace. But even for expert Excel users, there is time-savings potential within sourcing optimization technology that is just not achievable when relying primarily on desktop tools.
The panel explained that by turning to spreadsheets to manage events, in many cases you’re effectively limiting the number of suppliers that you can invite as it becomes unwieldy to collect and normalize such vast quantities of data manually. By comparison, when using sourcing optimization and its ability to automate that work, there's no extra effort involved whether 50 or 250 suppliers are invited to take part, as well as having the added benefit of 100% of the data centralized and traceable across bidding activities.
Additionally, the option of flexible bidding -- a key component of any sourcing optimization tool worth its salt -- gives suppliers the ability to reveal innovation as well as savings opportunities that may otherwise be missed:
But beyond price factors, the efficiency gained using sourcing optimization versus emailing spreadsheets back and forth with suppliers is a significant time and productivity benefit this solution has over other tools.
As well as allowing real-time bid feedback, the panel explained that modern sourcing optimization tools have built-in Artificial Intelligence that allows users to drag and drop data as it resides on the desktop and constructs the bid to a point where “almost 90-95% of a sourcing event can be fully configured in as little as 10 seconds.”
3. Sourcing Optimization Can Go Broad and Handle All Spend Categories & Events Sizes
The scalability of a solution is a key consideration for procurement teams with spend categories featuring large events involving many thousands of suppliers, tens of thousands of line items and millions of bids. But sometimes even smaller events can warrant sourcing optimization due to the number of locations involved, capacity, minimum order quantity or cost breakouts. Big or small, simple or complex, sourcing optimization has the versatility to handle all-sized events -- and it’s not just limited to certain categories, either:
While hard dollar financial savings is the core benefit that most organizations look to measure when optimizing events, it’s not always as simple as awarding to the lowest bid on each item. Additional challenges that add another layer of complexity for sourcing teams to manage can include new stakeholders with additional needs to be addressed, rules around CSR goals, or sustainability constraints that have to be taken into account. But by having the right tools to hand, sourcing teams are empowered to react to such challenges much more effectively:
With such a strong business case, it’s little wonder that a growing number of global procurement functions are looking to take advantage of sourcing optimization’s benefits and features across more of their spend categories. From significant financial savings to a reduction in time-to-award rate and boosted team productivity, sourcing optimization has many distinct advantages over other e-sourcing solutions on the market.
But it also doesn’t need to sound a death knell for those general e-sourcing tools your organization has invested significant time and money in either: for example, Keelvar’s SAP Ariba integration affords customers the option of leveraging our Sourcing Optimizer to handle complex spend categories or events to find new opportunities for savings and risk reduction through more competitive bidding and awarding. And if you still need convincing about whether sourcing optimization is the right solution for your team, watch the full webinar ‘Is Sourcing Optimization Ready To Go Mainstream’ on-demand here.
If you are interested in taking a deeper dive into how sourcing optimization can transform your procurement processes and get you on the right path for sourcing automation, please get in touch for a custom demo.