Competitive sourcing is a key element of Spend Control. Effectively defining the buying need and selecting the right supplier is critical for an organisation that wants to reduce both cost and risk. But whether it's for a one-time capital equipment purchase or service contract, or for ongoing supply of frequently used goods or services, the process can be complex and time consuming.
Many organisations want to do more competitive sourcing events, but simply don’t have the capacity. It just takes too long to properly gather requirements, identify potential suppliers, create PQQ (preliminary qualifying questions) and RFx ( RFI, RFP, RFQ, ITT, etc.) documents, receive and score responses, and run reverse auctions when appropriate. Often the required effort is so high because processes are not fully standardised and still rely on mailing and emailing of what are essentially paper documents.
As a result, the organisation does not involve Procurement as much as it should (“it would slow us down too much!”) and does not follow well-defined processes. Many important purchases are made with agreements where both cost and risk are much higher than they could have been. And Procurement can only perform strategic sourcing on a fraction of the categories it knows it could.
The cost impact is significant:
The organisation is also at risk:
- The organisation’s overall cost of goods and services is too high when suppliers are not asked to compete for the business
- Poor requirement creation and poorly evaluated suppliers often result in poor performance against expectations, causing additional costs to compensate
- The cost of administrative support and lost productivity throughout the organisation is high
- Poor supplier performance can ultimately affect the organisation’s performance against its own commitments to customers or constituents
- Suppliers not thoroughly evaluated may cause direct or indirect liability to the organisation
- Selection processes that are not methodical and transparent may cause accusations of unfairness that harm the organisation’s reputation
Fast, effective competitive sourcing
is essential, but adding more Procurement staff is not the only way to increase capacity. Tremendous sourcing capacity can be added by simply standardising processes and documents, and by leveraging electronic sourcing methods. Using these tools, sourcing events can be performed in a fast, consistent, successful manner by either functional departments or Procurement in a fraction of the time. And in some categories, the ability to perform frequent, effective eAuctions can drive even greater savings.