Converting esourcing's promise into bottomline savings

So far, esourcing hasn't affected company bottomlines

A default approach to sourcing is something like this. Identify a need; contact suppliers from an existing database; send each a Request For a Proposal (RFP); decide on further action based on the response.

According to an Aberdeen survey, the typical sourcing time without advanced tools is between 3.3 and 4.2 months. The traditional approach to satisfy a sourcing need is slow. These methods involve one-to-one communications technologies combined with simple, product-oriented processes.

Apart from the telephone, fax or snail mail, and in spite of technologies like email and EDI (Electronic Data Interchange), which are fast by themselves, the overall process is slowed down if other related processes are paper-intensive and people-dependent.

Since many-to-many or one-many communications is not always possible, there is no scope for comparing the merits of multiple supplier bids at the same time.

But e-enabling the sourcing processes or esourcing might be the solution to eliminate the hassles of the traditional approach.

esourcing software can be set up in a matter of weeks, or even days, and does not require too much work in terms of getting new equipment or systems integration.

An auction conducted in an esourcing system works like any regular online auction but in reverse "� the company that decides to hold the auction goes online not to sell products or services to the highest bidder but to buy goods or services from the bidder with the lowest prices and best terms.

esourcing is often confused with eprocurement. But the two are quite different. While each is involved in how a company relates to its suppliers, esourcing is more strategic than eprocurement, which is tactical.

Through eprocurement, the existing supplier base and transactions are better managed. esourcing goes a step further in providing access to new, prospective suppliers, besides the existing ones.

Apart from looking into the competitive industry dynamics, esourcing also considers how well a supplier is equipped to provide products or services, according to the company's specifications.

Industry adoption of esourcing has not been uniform. According to the Aberdeen survey, the highest penetration is in chemicals and pharmaceuticals ( 24 per cent) and automobile manufacturing (20 per cent).

Retail, wholesale, and distribution, metals and metal products, and finance, banking, and accounting are at 4 per cent each.

Across all industries, the technology is primarily used for MRO goods (71 per cent), followed by standard parts (67 per cent) and raw materials (57 per cent).

Early adopters of esourcing were mostly looking to negotiate price reductions better. Along the way they picked up quick cost-cutting benefits using reverse auction tools and so on. These benefits included a reduction in goods and services costs, cycle time, administration costs and in time-to-market.

But unfortunately and in spite of the savings in the sourcing process, the bottomline itself was not affected. One possible reason is that the esourcing and order-execution systems were not properly integrated.

Also, in concept esourcing would seem like a natural extension to enterprise resource planning (ERP). Vendors have even incorporated features like index bidding (for commodities), and optimisation.

While each has its merits in different situations, the organisation needs to make its decision on what it wants to buy, ultimately.

Most organisations eventually want to extend esourcing into areas of negotiation and communication of complex requirements for custom components.

A more comprehensive solution must, therefore, be flexible enough to grow with the business and extend its ability to source and negotiate when it comes to sourcing for complex products.

While esourcing sets out to improve efficiency and provide savings to the buying organisation, its role does not end there. Setting up an effective esourcing environment also requires making the right changes in work culture and obtaining the right personnel.

This is especially important in the current economic scenario. Despite the slump, enterprises are still focused on optimising spends.

With esourcing promising to deliver rapid and sizeable return on investment, spending on such sourcing solutions is growing.

A positive trend is seen, as enterprises seem more ready than earlier to make esourcing a long-term business strategy and not just an activity restricted to the short run.

Enterprise requirements and constraints are now driving sourcing vendors to deliver a "whole" esourcing solution that includes tools like supplier performance analysis, sourcing collaboration and requirement specification templates.

Given the market trends, only a solution that combines self-service applications with category expertise, methodologies, and sourcing-event management services that can be accessed when needed will help convert esourcing's promise into bottomline savings.

Mythily Ramesh is vice president and business head, Wipro 01markets