Business and technology insights

E-Sourcing: Reshaping the Strategic Sourcing Landscape

 
January 28, 2020

Emergence of e-Sourcing applications paved the way for simplification of the strategic sourcing process. Data can be efficiently gathered and organized which ultimately leads to maximizing savings. For instance, data related to a) pricing quotes provided by supplier and b) PO/contract awarded to suppliers, collected from historic sourcing events helps in cost-effective decision making. Software such as Node.js web server and Redis has enabled faster transition of data which in turn allows clients to submit bids seamlessly. The increase in the usability of the online strategic sourcing process has further stimulated large number of small and medium enterprises to participate and understand where they stand competitively in their market through instantaneous feedback. However as is the case with any new technology, it has attracted its own share of audience keen on exploiting the system.

Following are some of the online sourcing vulnerabilities and respective remediation strategies:

Auction Sniping

Auction sniping is a practice which has somewhat negated the benefits of online auctions. It is a process through which a bidder submits a bid likely to exceed the current highest bid seconds before the end of the auction. This gives other bidders no time to outbid the sniper. Certain computer programs have been specifically designed to act on behalf of a bidder in order to attain this unfair advantage. Rampant growth of auction sniping over the years resulted in experienced bidders outbidding amateurs.

To combat this, the practice of banning automated sniping has been gaining steam over the years. Features such as CAPTCHA’s and Final Extensions have been used to discourage bid snipers. Auto-bidding system feature allows bidders to set a maximum amount they are willing to spend by specifying a decrement factor. Anytime a sniper tries to outbid, this auto-bidding feature will submit a lower bid in case of reverse auctions on behalf of the bidder by considering the maximum amount and decrement factor. This helps in discouraging auction snipers.

Multi-attribute Scoring

Next generation of sourcing applications have allowed users to evaluate submitted bids by considering the qualitative factors as well. This has shifted the focus from price-driven process to a value seeking process. Multi Attribute weighted scoring method in auctions has allowed bid-takers to specify various characteristics of goods or services other than price such as delivery time, warranty terms etc. that are important to them.

It allows the bid-takers to define a major criteria for each attribute by assigning weights to these attributes and scores or expected values for each attribute.

A range of values between 1 and 100 is assigned to item attributes as weights. This helps in comparing item attributes. Higher the weight assigned, the greater the importance of that attribute for that item.

Scores are generally given in the range of 0 to 100 to each of the attribute. The higher the score assigned, the more important is the attribute compared to the other attributes.

Whenever a supplier quotes for items, a value (weighted score) is calculated by the system for the quote. The system then ranks the supplier/s based on the scores for each item. The ultimate aim of assigning weightage/s and score/s to item attributes is to prompt the respondents to quote bids most closely aligned with requested attributes of the items. 

The complexity and biased policies associated with setting multi-attribute scoring have instigated supplier/s to request for transparency. Buying organizations have generally been against providing the details about their scoring mechanism.

This opaque evaluation process and subsequent award may work well for the buyers, but it has the ability to weaken the supplier base and cause market inefficiencies in the long run.

Over the period of time scoring functionalities have gained popularity and many top vendors have been creating new scoring practices suited for different industries to enhance the value.

Non-binding Auction

Non-binding auction is conducted in two-stages. In the first stage, a price-only auction is conducted. In the second stage, the buyer sends invitation to few suppliers including those who were not part of auctions, to move to a negotiation phase for the contract. In this case, the auction winner is not awarded a contract nor is he invited to the bargaining phase of the auction. As the name suggests, even when the auction winner has submitted the best bid, a contract is not guaranteed. This practice has led participants to believe that buyers are increasingly opportunistic, and the entire process is misleading and opaque.

A possible solution is to consider only those bids which are above the reserve price as legally binding. Suppliers can be assured that the bids submitted below the reserve price threshold will be considered for award. This will level the playing field for all the suppliers.

Conclusion

Over the years, many top software vendors have incrementally enhanced features of e-sourcing applications. Barring a few shortfalls, the software has adopted strategic e-sourcing best practices, radically changed the sourcing landscape and enhanced the co-operation between the buyers and suppliers. 

Sagar Pathare is currently a functional consultant in the Innovation and Product Engineering group within TCS Platform Solutions. In his career, he has worked on major releases of a Source to Pay cloud-based product. He has played a pivotal role in enhancing the Auctions and RFX Management functionalities. He holds a master’s degree in Marketing from K.J. SIMSR (Mumbai) along with a graduate degree in Computer Engineering from Watumull Institute of Electrical Engineering and Computer Technology (Mumbai).