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The Un-Optimized Middle: 60%* of Sourcing Needs Better Decision Support

October 13, 2021

Jennifer Sikora

(*or more!)

Talk about nagging statistics: Not even half of enterprise procurement teams use an e-sourcing solution to automate their negotiations and improve award decisions with suppliers. In Ardent Partners’ 2021 State of Procurement study, 54% of 350+ procurement leaders report lacking an e-sourcing tool, and only 20% use sourcing optimization. Keelvar’s own August 2021 survey of sourcing professionals revealed that nearly one in three admit they rarely (less than 10% of eRFPs) or never use e-sourcing tech.

It can be maddening to still see these data as a solution provider in this space – and not simply because we’re trying to sell our wares. It’s because we see over and over again the strong ROI and other measurable benefits that are realized through customers’ more routine use of e-sourcing. Cost savings of course is a clear winner, but so are key concerns such as supplier risk mitigation; tracking and visibility through digitization; and progress against strategic corporate goals.

But what about those companies who ARE using e-sourcing and have been for years? Are they off the hook? Not necessarily. Let’s discuss a common scenario we see replayed within many supply chain-based enterprises:

The Basic E-Sourcing / E-Auction Tool Hits a Ceiling

For many companies, a basic eRFP or e-auction product is their first e-sourcing solution. This tool is rolled out 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 today must go beyond pricing analysis, which is where these tools hit a ceiling on the types of spends they can support. Without another solution available, sourcing practices regress back to using flexible, familiar spreadsheets and email messaging.

Sourcing Optimization is Vastly Underutilized

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. Examples: What happens if I compare lowest-cost-baseline to optimizing for speed or for sustainability ranking? What different award-splitting scenarios can I consider given capacity?

Historically, this type of solution was brought in with a narrow target: To handle the “really hard stuff,” i.e. annual ground transportation or global ocean shipping events or large-scale packaging material RFPs that are on a 2-3 year sourcing cycle. Sometimes, consultants were hired to support this work. Afterwards, the solution would be figuratively put back on the shelf until that category needed to again be strategically sourced next year.

The Suboptimal Middle: Everything You’re Missing

So what about everything else in the middle? And how much of your spend exists in that middle space? Here’s an example of how this might look for many organizations, particularly those with supply chains:

Certainly, companies will have some variation in the percent of spends that categorize into the top, middle, or bottom of the illustrative diagram shown above. And some of those top spends may be sourced on six-month vs. 12-month cycles. 

Trend-wise, more spends in the bottom category today will move to the middle tomorrow, as sourcing must increasingly weigh more criteria beyond price. Also, procurement teams have over the past 18 months seen those more complex, annual sourcing events shift to more frequent quarterly or monthly RFPs (or even spot buying) in response to market and supply chain disruptions. Those strategic spends will still require optimization even when sourced more frequently.

The middle is only going to get bigger, and it will be ever-harder to scale using desktop-based processes – especially as CPOs are pushing for more digitization, automation, and traceability. As noted above, basic e-sourcing tools are not designed to support greater complexity, while it’s far easier to extend the value of optimization to more sourcing events.

A Path Forward: Prioritize the Mainstreaming of Sourcing Optimization 

It’s time to revisit how to expand the reach of sourcing optimization to the middle – 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 tool. Companies should evaluate solutions based on how easy it will be to adopt for the largest portion of their team, not just the few advanced users who are focused on the most highly complex use cases.
  • 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!
  • Encourage 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 Keelvar has best practices 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. 
  • 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.

The good news is that there are several sourcing optimization solutions available for companies to evaluate; some are part of larger source-to-pay suites, others like Keelvar’s Sourcing Optimizer, easily plug in as best-of-breed point solutions and can be up and running very quickly. We also have a practical ebook to help plan the business case.

Keelvar would love to be part of the discussion and consideration for “attacking the middle” to get more spends competitively sourced. Request a demo here to get started.

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