Daily Archives: March 3, 2008

A Quick Start to e-Sourcing

Having trouble getting approval for that brand new e-Sourcing system you want to buy? Even though you know the return is there, if your CFO has not yet seen the light, then you’ll need to start small and get some quick wins. How do you do that? Eric Strovink of BIQ has an answer.

The one eternal constant in the world is that nothing stays the same. That’s true of e-Sourcing as well. If you’re innovative, significant progress can often be made without much support at all. Sometimes all it takes is a few successes to get the attention of senior management.

What budget do I need?

It used to be the case that a huge budget was required to start using an e-sourcing solution. With modern, on-demand and desktop e-sourcing software, this is no longer the case. Spend analysis software can be leased inexpensively by the month, with no up-front commitment. e-RFx and e-Auction software can be purchased on a per-event basis, if you run the event yourself — and basic software is even free from WhyAbe, if your needs are (quite) modest. You can live without contract management software early on; and if you aren’t running a lot of projects, then project management isn’t an issue either.

Optimization software is typically expensive, but Excel-based model solvers are relatively inexpensive when purchased for single users. Although constraint support is extremely limited, you can partially work around this limitation by creating multiple “scenarios” with different subsets of suppliers and products. You might not get the best solution, but with some ingenuity, you can get a better solution than what you would produce otherwise.

You should be able to short term lease an analytics tool to build and analyze a spend cube for under $10K, run several one-off e-RFX or e-Auction events for about $10K as well, and, with a lot of elbow-grease, analyze the results with Excel and an Excel solver for under $5K. In other words, for less than $25K, you should be able to run a few small, primitive, e-Sourcing projects.

What resources do I need?

You will probably only need one dedicated resource to learn the above software well enough to use it. Both modern Spend Analysis and e-RFX/e-Auction software packages are very easy to learn and use. If you want to jump-start the process, vendors and/or third-party services organizations can step in to offer walk-along training. There’s no need to commit to huge blocks of time and money against a promise of amorphous results; instead, ask your services provider to train your resources in a phased manner, such that their resources disengage frequently and allow your team to do the time-intensive work (of which there will be a lot if you’re using e-Sourcing tools with limited functionality). The price tag can be under $10K for a jump-start on spend analysis, the e-RFX/e-Auction process, or model building and solution.

What should I do first?

Spend analysis, if it hasn’t already been done, is a real eye-opener for the rest of the company. Once you’ve built the first A/P level cube, you’ll find opportunities everywhere. Sometimes this is enough, alone, to get a commitment from senior management for the e-Sourcing software you so desire and more resources. (And sometimes you’ll have to do a few more analyses and sourcing projects to prove it’s not a one-time fluke.)

Another way to gain management’s attention is to load invoice level data (price/quantity data, or PxQ data) into the spend analysis system, instead of A/P transactions. For commodities like PC purchases, office supplies, and contingent labor, it’s almost always the case that there are peculiar outliers and charges that shouldn’t have been assessed. One consultancy estimates that 3-5% is there for the taking. The good news about invoice analysis is that the result isn’t some “promise” of future savings based on radical behavior change, but instead a refund check or credits. It’s awfully hard to ignore someone walking down the hall waving a check.

Furthermore, once you get that check, you’ll be able to use it to pay for that new system that will greatly increase your efficiency, and savings, and allow you to go from running a few projects (that could require an almost painful amount of time and effort because – where e-RFX, e-Auction, and optimization are concerned – you get what you pay for) to running a few dozen or more! And that’s when the real savings will begin.