Sourcing optimization solutions have been around for over 20 years, but let’s face it: They haven’t truly gone mainstream... yet. Many procurement teams may still have a view of these tools as limited to niche or large-scale sourcing cases and only to be wrangled by those staff members possessing specialized training and advanced skill sets. That was so 10 years ago.
If you’re not using sourcing optimization or only trotting it out a few times a year, it’s time to seriously reevaluate that stance – especially for a solution consistently proven to yield some of the biggest ROI paybacks in the procurement arena.
Optimization delivers powerful benefits for mid-sized and enterprise organizations alike, particularly those where spend categories are more directly tied to business success.
Sourcing as a function has become more complex over the past decade, and basic e-sourcing tools haven’t kept up. Turning back to desktop-based sourcing practices where you’re managing emails (a familiar workaround) doesn’t come close to aligning with today’s CPO-level prioritization of greater digitalization, modernization, and automation. That’s where sourcing optimization comes in.
There are two main concerns many procurement leaders voice about sourcing optimization: (1) “We don’t have enough need or use cases for it”; and (2) “It seems hard to use and adopt internally.”
As to point number two, we can quickly dispatch of that worry – ease of use has come a long way, and has particularly been a major focus at Keelvar – with customers like Samsung sharing their rapid launch and user training successes.
Let’s then focus on the first area of debate, which is whether there is enough internal need to justify adding it to your toolkit. We consistently see across our customers four common drivers for sourcing optimization.
Any one of these four scenarios would justify application, but they frequently happen in various combinations as well:
Let’s delve into each of those four now:
1. Event Size and Scale
Sourcing optimization is often linked to large-scale strategic RFPs, which by definition bring complexity and massive data volume. Think here of annual ground transportation sourcing events involving thousands of lanes, hundreds of potential carriers invited to bid, more bid elements requested, and/or expansive geographic coverage. This scale can be found in other categories too, such as packaging materials and MRO (maintenance, repair, and operations) events involving hundreds or thousands of SKUs, network-wide facility services needing localized suppliers, and more.
Optimization is designed to handle this kind of volume, helping to automate data validation and completeness. But if sourcing teams are only using the product for events of this nature, they are significantly shortchanging the value they can drive. Which brings us to the next common reason…
2. More Types of Bid Inputs and Cost Model Calculations are Needed
Regardless of the size of your event, most spend categories today that have any degree of strategic importance to the business are evaluating suppliers on more than just lowest price and other basic criteria. Key inputs that can tip a decision include things such as sustainability factors; social responsibility; price bundling; capacity; delivery speed; past reliability; incumbency preferences; alternative offers; contract terms; and more.
With sourcing optimization, you can create a highly flexible online bid sheet to capture those types of inputs, so that your invited suppliers are able to communicate more value options to you that you may not have had visibility into before.
It helps you find those “unknown unknowns” that can create new ROI or innovation. Plus, anything collected can be quantified and modeled in the solution’s cost calculations.
3. Award Allocation Considerations
“Which supplier should we pick?” If this answer isn’t cut-and-dried, sourcing optimization may be the right solution to turn to. Some sourcing decisions may benefit from splitting awards. Others may mean selecting a supplier with a higher price but who brings less risk. There can be many different options for allocating your award, all based on the bid data you collected from suppliers.
Because sourcing optimization lets you collect more types of data, it gives you the analytical power to weigh the different scenarios side-by-side based on that data. This is where good technology allows more advanced work to be used by your sourcing buyers with minimal training time.
4. Your Decision Process with Stakeholders
Many sourcing decisions aren’t solely left to the buyer -- they involve some degree of collaboration with and buy-in from internal stakeholders for that spend category. Your stakeholders may have certain preferences, and sourcing optimization lets you quickly evaluate the impacts of those preferences and how they compare to other potential awarding scenarios. This ensures all parties understand the various trade-offs and make informed decisions based on total value and lowest risk.
In summary, sourcing optimization allows many types of complexity to be automatically modeled in an efficient, easily adoptable way. And as many categories of spend are experiencing more tactical sourcing on a quarterly or even monthly frequency, driven by market changes and disruptions, there are more opportunities than ever to apply this high-ROI solution.