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Recently, Tim Minahan over at Supply Excellence has been very focused on e-Sourcing, why it is good for suppliers , strategies to make the most of e-Sourcing , why it’s not all about reverse auctions , and. why there is so much resistance
And although I indubitably agree with the vast majority of his points, I have to disagree with his rationale for a continued resistance to e-Sourcing by many buyers (and suppliers). However, before I continue the story, we should summarize the story to date.
It started with Why e-Sourcing is Good for Suppliers: Part I in which Tim set out to dispel “The 7 Myths of e-Sourcing” where he succinctly stated, contrary to some archaic popular beliefs that:
- e-Sourcing is NOT all about lowering prices
proper e-Sourcing tools allow qualification and evaluation on all attributes of a supplier’s capabilities and costs, allowing a buyer to make a decision on value
- e-Sourcing is NOT unfair to suppliers
e-Sourcing introduces integrity, opens the playing field, and insures that all suppliers get a fair shake
- e-Sourcing is NOT unfair to incumbents
since good e-Sourcing tools allow the buyer to evaluate the value provided by the incumbent, by way of innovation credits and switching costs, a competitive incumbent is in a good position to actually win more of the business
- e-Sourcing does NOT make it difficult to win new business
since e-Sourcing dramatically shrinks sourcing cycles, suppliers can participate in more events and increase their opportunities
- e-Sourcing does NOT lengthen the sales cycle
since e-Sourcing shrinks sourcing cycles, it also shrinks sales cycles and getting to no fast can be as valuable as getting to yes fast
- e-Sourcing does NOT burden suppliers with new cost, technology, and resource requirements
not only is there compelling evidence that e-Sourcing reduces overall SG&A costs, but a proper on-demand solution can reduce supplier technology requirements to a PC and a net connection, which is likely to already be on the desk of most of the supplier’s analysts and sales people
- e-Sourcing does NOT eliminate buyer-supplier relationships
e-Sourcing platforms allow buyers and suppliers to gain better visibility into costs and risks in the supply chain and work together to come up with innovative cost-saving, value-enhancing solutions that build stronger relationships over time
This was followed with Why e-Sourcing is Good for Suppliers: The Sequel where Tim offered strategies for suppliers to make the most of e-sourcing events. Succinctly, Tim suggested that a supplier should:
- Teach their buyers well
by educating buyers on the total cost and value drivers of the industry and using the e-RFX process to lobby buyers to incorporate qualitative metrics such as innovation, fulfillment, and quality into the award criteria
- Fire bad customers
since the top 20% of your customers will generally contribute 80% of your profits, you should focus on those customers that provide the same value to you that you provide to them and drop the rest; e-Sourcing facilitates this by letting you quickly gather the information needed to determine whether a potential new customer shares the same attributes and capabilities of your current top customers
- Do your homework
make sure you fully understand the buyer’s specifications and award criteria and provide all of the information in a timely fashion
- Have a game plan … and stick to it
pre-determine your starting bid, bidding increments, and lowest sustainable price; bidding away your entire margin is not good for anyone
- Play fair
not only will you get fired on the spot by a savvy buyer if you attempt to circumvent the process, but you could get a bad reputation which would hinder future business
- Win the business everyday
remember, a buyer uses e-Sourcing to help him find the supplier that offers the most value – and a supplier who consistently exceeds basic requirements and expectations is much more likely to be given high marks on the qualitative analysis of future awards, leading to a higher overall value in the mind of the buyer
Then, as a result of the number of comments and e-mails Tim received, Tim inferred that his recent posts on the myths of e-sourcing must have touched a nerve and quickly fired off another short post where he explained that e-Sourcing: It Ain’t All About Reverse Auctions and that e-sourcing is not a euphemism for reverse auctions. Instead, auctions are just one flavor of negotiation types available on the e-sourcing menu. Other negotiation types include electronic RFI, RFP, RFQ, sealed bids, transformational bidding, flexible or expressive bidding, and optimization. (…) And, as stated in the previous post, nearly all e-sourcing projects utilize multi-threaded or iterative negotiations, moving from e-RFI-to-e-RFx, etc.
Tim furthermore noted that negotiation itself is only one area of functionality supported by an e-sourcing platform. It is also only a small portion of the strategic sourcing process. Time dedicated to negotiation accounts for less than 20% of the overall sourcing process. The bulk of sourcing efforts come pre-negotiation (…) and post-negotiation (…). These activities largely determine the success and total value derived from any form of only negotiation. This led to a revised definition where he stated that a more apt definition of e-Sourcing is the use of Web-based applications, decision support tools, and associated services to streamline and enhance strategic sourcing processes, determine best-value supply relationships, and advance knowledge management.
And since this last post was a week ago, it looked like it was the end of the story. But comments continued to poor in, and yesterday Tim blogged Whither e-Sourcing? in response to a particular remark by Apexon’s Kevin Brooks that essentially pointed out that despite all the value, you still often find tremendous resistance to the e-Sourcing process. In this post, Tim offered a conjecture as to why buyers and suppliers resist. The conjecture:
Tim states that buyers don’t like the way e-sourcing adds discipline and accountability to the process and that suppliers don’t like e-sourcing because it introduces a level of competition and quotes Dave Nelson (of Honda, John Deere, and Delphi) who said buyers do not like e-sourcing because it makes them do their work and Jason Busch of Spend Matters who said ”e-sourcing doesn’t allow buyers to select suppliers based on the size of their Morton’s [steakhouse] expense account.
And even though we are all quite capable, and probably guilty, of becoming quite lazy every now and again, especially when we are tired, bored, and worn out, I do not think this is the cause, only the perceived symptom.
So let’s assume that what Tim, Dave, and Jason said is true and that buyers and suppliers are lazy when it comes to e-Sourcing, that this is only the symptom, and try to deduce the root cause(s).
(1) Buyer’s don’t like the discipline and accountability e-Sourcing adds to the process.
I do not believe that buyers fundamentally have a problem with discipline – after all, discipline is process and a well-defined process can streamline your work, not make more of it. Maybe they don’t like the accountability, but when you consider that it is their ass is on the line, and that a well designed system can actually make it more transparent that they are doing their job well and the screw-up down the line is someone else’s fault, the system seems kind of attractive.
However, if the buyer does not judge the system to be well designed, well explained, and easy to use, then the buyer is going to equate that system with more work, and not less, and since your average buyer is more likely overworked than not, it’s only logical that they would resist. But it’s not resisting out of laziness, it’s resisting in an effort to keep their workload down in an effort to maintain their current level of productivity.
(2) Suppliers don’t like e-sourcing because it introduces a level of competition.
Suppliers are always under fire from competition with or without e-Sourcing – and most recognize this fact! However, if the process appears to favor the competition, it is logical that they would resist, and this would be out of fear and not laziness.
Thus, not only does the supplier need to be educated on how e-Sourcing improves the process and levels the playing field, the supplier has to have confidence that the buyer will use the tool fairly.
(3) Buyers do not like e-sourcing because it makes them do their work.
As I said in my response to the first point, for the most part, I do not believe that buyers do not want to do work, I believe that buyers do not want to do extra work that will detract from their productivity (and make them look bad). And since a poorly designed, or poorly explained, system will only cause them extra work, it is natural they would resist.
(4) E-sourcing doesn’t allow buyers to select suppliers based on the size of their Morton’s [steakhouse] expense account.
This is actually the most valid point – but not because buyers are greedy and want kickbacks, but because buyers want to be recognized for what they are worth and get what they deserve – just like the rest of us. I’m willing to bet that if a buyer is willing to select a supplier based on a few free dinners or a “supplier forum” in a tropical paradise that they are doing this because they are over worked and under paid with respect to their peers due to a poor, or more likely still, lack of incentive program on their employer’s part. And as regular readers will know, I strongly encourage incentive-based compensation since the best productivity stems from incentivized workers.
In other words, for the most part (*), I do not think that buyers or suppliers are resisting e-Sourcing because they are lazy. I think that they resist because they are overworked, under paid, or under-supported. If the evangelist took the time to properly demonstrate how the expected results could be achieved, management made the effort to insure that workloads were reasonable and that proper incentive and reward structures were in place, and everyone approached e-Sourcing open, honestly, and with the best of intentions, then I believe that a large number of buyers and suppliers would be willing to at least give e-Sourcing a try. However, if you continue to live in organisation man’s world and simply try to shove an e-Sourcing solution down their throats as the latest “flavor of the month” software system, then I expect the resistance will continue. That’s my view. (If you disagree you can try the comment feature or e-mail me directly at thedoctor<at>sourcinginnovation.com.)
(*) I say for the most part because there is always the exception. In that case, all you can do is show the lazy moocher the door and move forward with the rest of your sourcing team.