Sourcing Optimization: The Most Under-Utilized e-Sourcing Tool in Procurement

February 1, 2022

author:
Keelvar

The ongoing supply chain disruptions we face call for rapid, agile logistics and procurement solutions. As an e-sourcing software solution that has consistently proven to yield some of the biggest ROI paybacks in the procurement arena, every enterprise and mid-sized business with a supply chain should consider using sourcing optimization technology to help mitigate risks while helping to discover new opportunities for cost-savings.

On top of that, as comfortable as many sourcing professionals may feel in the old familiarity of spreadsheets, turning back to desktop-based sourcing practices where you’re managing emails (a familiar workaround) doesn’t come close to aligning with today’s Chief Procurement Officer-level prioritization of greater digitalization, modernization, and automation. And when something starts happening with more frequency – as we’ve seen with sourcing and spot buying – scalability and speed are key. 

Research and advisory firm Ardent Partners’ 16th Annual State of Procurement report showed how procurement leaders are seeking out bold and inventive ways for their business to thrive in this new normal in which we’re operating. Adding further fuel to this finding, data gathered in Keelvar’s inaugural Voices of Sourcing Survey and discussed during a January 2022 webinar revealed that more organizations than ever have an appetite for adopting innovative sourcing solutions to improve their effectiveness and competitive edge. And that’s where sourcing optimization comes in.


A Brief Background to Optimization: e-Sourcing Tools

Optimization-backed e-sourcing solutions first came onto the landscape in the early 2000s, delivered either through software or specialized consulting services backed by technology. It was the next natural advancement following the widespread adoption of eRFP and e-auction tools, which in the 1990s introduced a way to digitize and centralize silo-based, often manually executed buyer-supplier negotiations. 

For many companies, a basic eRFP or e-auction product is still their first port of call, utilised as a means to  drive competitive bidding focused on the simpler spends where “lowest price” is the dominant or sole decision criteria among qualified suppliers. 

However,  an increasing percentage of sourcing decisions now go beyond just pricing analysis as a means to award the winning bid i.e. for the cheapest, that’s where the most capable (yet vastly underutilized) e-sourcing tool, sourcing optimization, should come into play. More advanced than straightforward eRFPs or e-auctions, sourcing optimization is designed to mathematically combine multiple criteria – price and non-price – to arrive at an optimal award decision given various constraints. For example: What happens if I compare the lowest-cost baseline to optimizing for speed or for sustainability ranking? 

Historically, sourcing optimization was brought in "to handle the hard stuff" such as annual ground transportation, global ocean shipping events or large-scale packaging material RFPs. 

But nowadays, procurement teams ever more frequently see those complex, annual sourcing events shift to more frequent quarterly or monthly RFPs (or spot buying) in response to market and supply chain disruptions.  

Challenges such as these are going to keep coming, and it is getting more difficult to scale up your business using desktop-based processes. 


Tips for Adopting e-Sourcing Tools

As noted above, basic tools are not designed to support modern sourcing complexity. Yet many procurement teams still view e-sourcing software as limited to niche or large-scale sourcing cases and only to be wrangled by staff members who possess specialized training and advanced skill sets.

It’s time to revisit how to expand the reach of sourcing optimization and how to remove the obstacles that may be in the way: 

1 Find a Solution for the Majority: Yes, adding or expanding sourcing optimization’s use means more team members will need to learn another e-sourcing tool. Companies should evaluate solutions based on how easy it will be to adopt for the largest portion of their team, not just a few advanced users who are focused on the most highly complex use cases.

2 Determine the Training Journey: A procurement team may design a phased approach for onboarding more team members to optimization or may implement a train-the-trainer model and/or a center-led advisory team. 

The plan should include ongoing refresher or up-level training so skills improve vs. get rusty. Optimization benefits grow with better feature usage. Your solution provider also should play a partnering role – read how Keelvar’s dedicated customer success team helps steer our customers towards sourcing success.

3 Encourage e-Sourcing Tool Adoption Through Process Changes: There should be a clearly articulated guide for determining when to turn to optimization vs. a basic e-auction. Criteria matrixes can help, and again, Keelvar has best practice guides for our customers to start crafting their own guidance. Also, sourcing transformation can be motivated with incentives and even through sharing of “win” stories internally. Hear how one Keelvar customer encouragede-sourcing tool adoption in this on-demand webinar.

4 Promote the Benefits of Greater Transparency: Getting more sourcing digitized makes everything easier to track and for reporting to be shared. This can also help identify areas of adoption lag. Setting realistic goals is also key, in terms of how much more spend should shift to e-sourcing and optimization on an annual basis, along with accountability against those goals.

Summary

Is switching to optimization-backed e-Sourcing worth the initial effort of building the business case for implementing the tool? Certainly, if you’re in the market for:

  • Increased savings potential
  • Increased collaboration and transparency
  • Reduced cycle times
  • Increased adoption rates through ease of use features
  • Setting your team up for procurement automation


The bottom line is if you’re yet not using optimization-backed sourcing technology,  it’s time to reevaluate that stance. Optimization delivers powerful benefits for both mid-sized and enterprise organizations alike, particularly where spend categories are more directly tied to business success. 

And with the global supply chain chaos showing little sign of abating any time yet, it's high time to broaden the reach of sourcing optimization technology to significantly uncover ROI potential for more businesses and to help them find additional benefits ranging from talent retention and attraction to forging stronger supplier relationships and even improved sourcing sustainability.


Interested in seeing how sourcing optimization can enhance your sourcing practices? We'd like to show you. Request a custom demo here


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