Sourcing Modernization: Two Solutions for One Goal

Posted: 11/04/2021 - 09:00
Sourcing Modernization: Two Solutions for One Goal

Sourcing Modernization: Two Solutions for One Goal

In the midst of global disruption, fluctuating demand and supply has driven industry leaders to hold sourcing events more frequently amid the chaos.

While supply chain challenges continue, it is crucial that businesses equip themselves with tech that allows for both standard and complex sourcing events. This is especially true as the need to drive non-cost objectives around sustainability initiatives, delivery speed and more rises.

As a result, companies are increasingly modernizing their technology solution suite to include both simplistic e-sourcing tools and sourcing optimization solutions. This dual approach lets buying teams attack a broader range of sourcing needs, while also helping to centralize more data and insights, improve sourcing outcomes, address new priorities and respond more efficiently to disruptions.

Basic E-sourcing vs. Optimization: What’s the Difference?

Basic e-sourcing tools and optimization are two complementary technologies that can work side-by-side to address different needs. The major difference between the two is the level of decision support provided and increased speed of analysis.

Basic e-sourcing tools include e-auctions and are well-suited to facilitate award situations that prioritize low cost without having to consider multiple factors. When a business is looking to buy an indirect product in bulk from a single supplier (think office furnishings or IT equipment), this technology often gets the job done. Buyers can easily make a decision based on the best deal available.

However, these solutions cannot take on the additional considerations that complex issues or competing priorities present. In today’s world where freight container prices are soaring, shipping delays are breaking records, and consumer demand continues to rapidly fluctuate, a simple e-sourcing tool won’t suffice on its own. Add to that any corporate goals around supplier diversity and sustainability, for example, and your buyers have even more to deliberate. That’s when sourcing optimization trumps the basic e-sourcing tools.

Sourcing optimization enables teams to go beyond straightforward award decision-making based on “lowest-cost-takes all.. Buyers can collect a wide range of price and non-price bid information from suppliers, and then analyze multiple awarding scenarios that can weigh those criteria and other constraints. This technology is also proven to yield some of the biggest ROI paybacks in procurement.

Frequency and Complexity: It’s Time to Optimize

Both basic e-sourcing tools and optimization tech are critical given the constant flux of sourcing needs. The combination of two solutions that work in tandem gives businesses the agility they need to adapt and evolve in today’s market. Best practice is to run the two tools in the same environment to handle different types of spend. The key, however, is knowing when to use each tool.

Traditionally, optimization was solely used for big annual sourcing events. While sourcing optimization is ideal for large, infrequent yearly decisions, there is significant opportunity to apply it more routinely as an increasing number of sourcing events gain complexity and importance amid the chaos.

On top of managing more sourcing events than ever, buyers today also need to make award decisions based on more than just lowest price. Today we are seeing limited capacity, heightened CO2 emissions, longer shipping times, increased risk and more. Failing to weigh these factors puts the buyer and their business at risk.

Making a strategic award decision requires weighing every factor in the complex equation. How socially responsible is this supplier? Have they been known to be reliable in the past? How quickly can they deliver? Do they offer price bundles? Sourcing optimization answers these questions – and others – which allows businesses to see all the cards on the table – and create a winning hand. It automates data validation and completeness and saves your team a serious headache. 

Stronger Together: The Business Case for Both

Whereas simple e-sourcing tools are efficient for replenishing a material – or renewing a contract with a longstanding supplier – optimization is needed for those decisions with more at stake. Perhaps there are several new prospects to choose from to meet changing capacity needs or quantity levels. This strategic spend requires more visibility and insight, and optimization is the tech for the job.

The main takeaway here is relying on limited technology alone is no longer feasible. When executing a standard bidding event, a more simplistic tool can be the go-to option and will deliver quick and easy results. When making complex, high-stakes sourcing decisions, optimization needs to be at your right hand.

A dual approach to sourcing gives procurement leaders the most coveted advantage in today’s challenging times – agility. Resilience is as simple as two technologies working together with one common goal.


About The Author

Alan Holland's picture

Previously a lecturer in Artificial Intelligence at the University College Cork (Ireland) Computer Science Department, Alan Holland founded e-sourcing software company Keelvar in September 2012 when he left the University to commercialize advances in AI for procurement teams. ‍He specializes in optimization, game theory, and mechanism design. He is a frequent speaker and contributor to supply chain and procurement conferences and publications.