Most sourcing platforms were designed for indirect sourcing, commonly described as the sourcing of finished/consumer goods and services, because it was easy, quick, and allowed an average organization, even a manufacturing, pharmaceutical, or Oil & Gas company, to get big savings (as most of these organizations spent all their time and effort on direct sourcing). Why? These were typically the least well managed, and the most bloated, categories and simply inviting more suppliers, who had to complete a pre-defined RFX that allowed for apples-to-apples comparisons, pushed prices down, and if the market conditions were right, auctions pushed prices down further and it was not uncommon to find a number of categories where 20%, 30%, or even 40% savings could be found during the first event simply by squeezing the unnecessary fat out of the margins.
But this is the very reason why the first generation sourcing platforms boomed and busted, and why auctions rose and fell in an average organization during the noughts. The organization would save a huge amount the first auction, typically at least 15%. They’d then save a respectable amount during the next auction, say 5%, because all the suppliers came back with their pencils sharpened ahead of time. But the third auction would fail miserably, and most of the time prices would increase. Once all the fat is squeezed out of the margin, competitive RFX or auction will not save any more and, in fact, over time, inflation will creep in, the supply/demand imbalance will shift, and, without something new, costs will rise.
The next step, if the organization is analytical, is generally to bring in analytics, identify the categories with the best opportunities due to market price trends, supply/demand imbalance, or sheer volume leverage the organization had. Careful picking, even if the category was sourced twice, or thrice, before will still lead to some savings. At least once.
And when those savings run out, then you look at optimizing TCO when all costs, discounts, transportation costs, discounts, and associated lifecycle costs are modelled. You build your risk mitigation rules and by splitting the award, choosing the carriers and lanes carefully, and just being smart, more savings materialize. Typically over a few events as your volume leverage increases, your sophistication improves, and your events get bigger.
But there’s always another brick in the wall, and you’re always going to hit it. Unless you go direct. Why? Guess you just have to come back for Part II!