Electronic sourcing (or simply “e-sourcing”) is the process of conducting sourcing events in a digital environment where buyers connect with, compare, negotiate with, and ultimately select the supplier that, in procurement’s view, will drive the most value and performance for the enterprise.
E-sourcing solutions range from digital business networks and supplier discovery tools, to e-auction and reverse auction tools, to custom-built sourcing portals where procurement and sourcing practitioners can conduct B2B relationships with their supplier base.
E-sourcing tools allow procurement and sourcing teams to conduct hundreds or thousands of sourcing events online in a fast and efficient manner. And by virtue of having greater competition at the team’s fingertips, the more events that sourcing and procurement teams conduct on e-sourcing platforms, the greater cost savings they can wring out of supplier agreements, and the more long-term value that they can drive.
Technology solution providers offer e-sourcing tools as “best-of-breed,” standalone applications or as part of larger source-to-settle/source-to-pay solution suites. While best-of-breed solutions offer robust functionality, e-sourcing tools that are offered as part of a solution suite have the added value of being connected with the larger source-to-settle value chain, which facilitates easier movement of data, documents, and information, as well as faster and more efficient throughputs across the value chain.
In other words, e-sourcing tools offered via solution suites can allow practitioners to seamlessly leverage spend analysis to help them inform sourcing decisions as compared to best-of-breed solutions. They can also allow practitioners to pull sourcing data, documents, and information into the subsequent contract authoring and management phase of the event, which should ensure that service-level agreements, terms and conditions, and all of the details therein are captured and codified into a formal contract.
For these reasons, Ardent Partners has consistently advocated for the widespread adoption and use of e-sourcing tools at scale, for they can drive significant value for procurement organizations of all maturity classes. Ardent’s recent research report, CPO Rising 2016: The Art and Science of Procurement, found that for the second year in a row, a majority of procurement teams of all maturity classes (58%) currently deploy an e-sourcing tool, with another 19% planning to adopt one in the near future.
While this is encouraging, the best-in-class provide a better model for e-sourcing adoption: 82% adoption compared to 53% adoption. Put another way, the best-in-class are 56% more likely to utilize this solution, and the benefits are clear:
- The best-in-class report 37% greater spend over management (SUM) than all others (91% vs. 57%), which e-sourcing facilitates by placing more sourcing events through a formal process and under the influence of procurement.
- As a result, they also competitively source 67% of their addressable spend.
- Best-in-class sourcing and procurement teams also report average savings on their e-sourcing projects that are 7% higher than the results of their competitors (9.8% average savings on e-sourcing projects vs. 9.1%).
- They identified 14% greater savings than all other teams, and realized 10% greater savings than all other teams (7.7% vs. 6.9%).
As noted above, the best-in-class saved more last year than their peers; and thanks in large part to e-sourcing tools, they expect to repeat that performance in 2016. Among many things, these solutions help sourcing teams scale their programs, develop and share best practices, and retain category and supply market knowledge. They can also be very effective in helping to drive price discovery and efficiency. That is why the best-in-class deploy them to such a high degree, and why their use across maturity classes has caught on.
If your organization does not have an e-sourcing solution in place, change that. If one is already in place, start driving and/or mandating its usage. It may be the single most effective value driver for CPOs and procurement teams today.
Free download: For more lessons learned from best-in-class procurement organizations, please see Ardent Partners’ CPO Rising 2016: The Art and Science of Procurement.
This article originally appeared on CPO Rising. Matthew York is a research analyst at Ardent Partners and editor of CPO Rising. Andrew Bartolini is the chief research officer at Ardent Partners. Follow Ardent Partners on Twitter.