Category Archives: Sourcing Innovation

About Sourcing Innovation

Sourcing Innovation is a resource for sourcing, procurement, and supply chain professionals who are interested in improving themselves and the overall performance of their organizations. Sourcing Innovation is education about, in-depth analysis of, and subjective opinion on technologies and approaches that can have a profound impact on the way you do business. The editor believes that the more you know, the better your chances of success.

That’s why Sourcing Innovation brings you in-depth technology and vendor analyses, reviews and analysis of some of the more important articles and white-papers that pop-up from time to time, as well as best practices and deep dives into specific solution areas. Sourcing Innovation also explores key issues that you need to be aware of as a sourcing professional.

However, use of this blog and any content on means that you accept all of the editorial disclaimers, licenses, and copyright requirements associated with this blog.  You also accept this is a free resource for personal, non-commercial, use for educational, informational, and entertainment purposes only!  No warranties, express or implied, are provided on the accuracy, completeness or adequacy of such information and Sourcing Innovation shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.

You also accept that while Sourcing Innovation will cover, and provide opinions on, companies, solutions, platforms, and/or products, Sourcing Innovation is NOT making a recommendation for or against any specific company, solution, platform, and/or product.  It is merely providing one data point that may be used in your consideration, at your own risk, and any recommendations it provides are for situations in which it would consider or not consider the company, solution, platform, and/or product for a shortlist.  (i.e. it would include, or not include, the company, solution, platform, and/or product based on a specific scenario)

Sourcing Innovation, was started in June of 2006 to dive deeper into technology, processes and core issues than the average blogger and analyst (who tends to come from a business background in marketing, management, solutions consulting, or system implementation, and is therefore unable to comment as credibly on underlying technology) than other sites that existed at the time.

A second primary goal of this blog tis o raise awareness of innovative best practices and technologies that are relatively unknown but that could be used by a large number of organizations to elevate their performance as a whole. When one combines the impending talent crunch with the rapid rise of developing nations like China and India, innovation takes on a whole new importance, since it might be the only way North America, Western Europe, and other developed nations will be able to compete in the coming decades. When this blog was started in 2006, we were seeing rapid rise in energy and raw material prices globally which was followed by the rapid fall of the US dollar in 2007 and the 2007-2008 financial crisis; and while the situation improved, there were still many bumps along the way from 2009 through 2019 and then 2020 saw the world shut down when China shut down during COVID, and just as supply chains started to normalize we saw Panamanian droughts and conflict in the Red Sea, continuing the global sourcing nightmares which have now been ongoing for over 4 years (as of July, 2024). In other words, every time global business resolves a fork in the road, yet another one appears, and only the organizations that continually innovate will be able to find the path that leads to continued success.

Sourcing Innovation was designed to be one of the focal points for the sourcing community with steady technology and process coverage. A large number of blogs have come and gone over the last couple of decades, and at any given time it’s hard to know who’s blogging, on what topic, and where the thought leaders have gone.In the past, Sourcing Innovation regularly organized cross-blog posting series that focused on important, key topics and regularly invited the thought leaders to guest post.  (To date, Sourcing Innovation has successfully tackled The Future of Sourcing, The Top Three, and Sustainability and has brought together between one dozen and two dozen leading bloggers and thinkers on each topic as well as attracting around 100 of the space’s thought leaders to its virtual pages.) Today, it updates its blog list at least annually and occasionally invites leading experts to contribute.

Sourcing Innovation also injects a sense of humour, usually lyrical in nature, on topics of interest.

Finally, as mentioned above, Sourcing Innovation is not afraid to express an opinion (purely subjective and should not be taken as fact) and rant on a topic.  (But please note rants are on topics, processes, industry directions, class of entities, solution types, etc. and other generalities.  Rants are not on specific vendors or people.  If you believe otherwise, you are wrong.  As mentioned above, regardless of the view expressed on a company or solution, Sourcing Innovation is not providing a recommendation for or against, as every situation is unique and Sourcing Innovation never knows all of your specific details.)

For more information on Sourcing Innovation, please check out the posts in the About Category. You might also want to check out Where Is My Market Going?.

For more information on the doctor, you might want to check out What Does the doctor Do? and What Does the doctor Do? For Executives.

For more information on becoming a corporate sponsor, and influencing the influencers, you should check out Why I’m Going To Sponsor SI! and The SI Open Pricing Model.

To contact the doctor, see the contact information in the FAQ.

( spam@sourcinginnovation.com)

The Catalog is Not The Be All and End-All …

Originally posted on the Synertrade blog in November, 2018.

… it’s only the foundation that you need for great across-the-board cost control.

But let’s back up a bit so you know where we’re coming from. As we have already discussed, the past couple of years have seen a flurry of M&A activity, with a lot of “best-of-breed” catalog vendors getting scooped up, and one big firm in particular buying two, that’s right, two “best-of-breed” catalog vendors (when such firm already had an in-house catalog management solution). This is, of course, a bit whacky because

  1. it’s not how many external catalogs are built-in out of the box (but how many you need),
  2. how smart the guided buying is (as most “guided buying” can be accomplished by a few simple rules and it’s simply about ensuring the right product is bought), or
  3. how Web X.0 the UX is (it has to be usable, not confusingly beautiful).

Remember the key points we made in our last post on why you should update that catalog (not that catalog platform, as it might be more than adequate for your organizational needs):

  1. it captures negotiated savings by making sure negotiated deals are captured for easy requisition by buyers;
  2. it makes it easy for buyers to see what is contracted, what is preferred, and, most importantly, what is neither;
  3. it captures more organizational spending and this is why
  4. it enables more cost control.

Let’s focus on this last point. Enables. Good sourcing and procurement requires good insight into organizational spending. When spend is just put on a P-Card, or even worse, a T&E report, an organization generally doesn’t have good insight into precisely what it was for or what other products or services there are that are, or could be, under contract that could have been selected (or why those contracted products and services were not contracted).

Remember, a prime candidate category for sourcing is one that has a great savings potential when current spend is compared to expected spend against market average and depends on two factors: volume and price differential by unit. And if you do not have true insight into category volume or the precise products (and the price differential from current market pricing of preferred products), you will never know what categories with great potential exist that you are missing.

It’s not always the 10M+ or 100M+ categories that hide the biggest savings. Chances are you are aggressively sourcing the 100M+ categories every year and the best you can do in any given year when prices are static or rising is 2% with good sourcing optimization and better inventory and cash management. That’s maybe 2M in savings. For a 10M category, that is often put through a less rigorous sourcing process, you’re still probably coming within 3% to 4% of absolute optimal, let’s say 300 K of savings might exist. That’s not a lot.

However, it’s often the case that there are a handful of 1M to 5M categories being ignored because half of the spend (or more) is unmanaged catalog, P-Card, and, even worse, personal credit card spend (which only appears on T&E reports). Let’s say there are five of these categories not under contract which total 10M. Chances are, the average over-spend here is 10% to 30%, depending on the category. Or, on average, 1.5M on categories that could be quickly, and near-optimally, sourced with 3-bids-and-a-buy within 3% of optimal. In other words, the insights a good catalog solution provides through increased spend capture could enable another 1.2M on just a handful of categories.

And this is why catalogs are not the be all and end all. They are the enabler. The true value of a catalog-enabled solution is an end-to-end platform that supports not only strategic sourcing and day-to-day Procurement but tail-spend management around the catalog. This is where the greatest overages, percentage-wise, often are and there is no single strategy for tail-spend management. Some of it has to be spot-buys off a catalog. Some of it has to be 3-bids-and-a-buy quick-hitter single-round RFX. Some of it has to be promoted to strategic categories, existing or new. Some of it has to be auctioned on a regular basis to the lowest bidder. And for some of it, the strategy will change on market events. And if all the platform supports is catalog buys, great opportunities are being missed.

And that’s why you need more than just a great, updated, catalog — you need an integrated end-to-end platform around that updated catalog with good tail spend management to capture the next-level of savings.

Breathing New Life into e-Auctions

Originally posted on the Synertrade blog in February, 2018.

SynerTrade has been saying e-Auctions are not dead, and they are right — they’re not. Many organizations are still using e-Auctions, and these e-Auctions are still delivering fantastic returns the first time (they are applied to a category). And sometimes these e-Auctions even deliver fantastic returns the second time. But, in an average organization, these e-Auctions sometimes die after a few key categories have been sourced for the third time and prices go up. (Yes, prices can go up as a result of an auction — especially if the auction was poorly designed or the category poorly chosen.)

So how do you make sure your auctions don’t die?

Three three best practices will give e-Auctions eternal life in your organization!

1) Analyze the Market before choosing e-Auctions as your strategic sourcing platform

Use publicly available market data from indices, government contracts, marketplaces, and your GPOs to build a reasonable should cost model and compare it to your current costs. If market prices have gone up (considerably) since the last e-Auction, chances are there’s not going to be much success in the e-Auction. If market prices have gone down, chances are there is a good opportunity for success. If market price is about the same, then if the volume is there, since good negotiations can get below market, then still consider an e-Auction.

2) Break out the costs … and invite carriers and configurators too

All-in bids allow providers to build in or hide greater than market costs and takes away your opportunity as a buyer to either lower those costs if the service (such as shipping or system pre-configuration) can be done cheaper by third parties or identify opportunities for supplier development to lower costs over time. So break out product bids from delivery bids (and break out worker / service rates from travel and expense costs) and make sure the best provider can bid on each.

3) Automate 3-bids-and-a-buy tail-spend

The biggest opportunity is in mid-size categories that are not being regularly sourced where you have no time to build should cost models and no insight into market pricing. Create standard templates for these, along with standard (approved) supplier lists, and use your platform to automatically construct the auction workflow. And if you have a cognitive platform, use it to automate the entire auction (including the award if all suppliers have been pre-qualified and the amount is under a threshold). In an average organization, tail-spend is 20% to 30% and over spend is 15% to 30% — and this negatively impacts the bottom line by 3% to 9%. Auctions can deliver easy savings here … that go straight to the bottom line.

In addition, you can also consider the following to get even more use out of your e-Auction platform:

4) Supplier Qualification

Do multi-round tenders that use e-Auctions for supplier qualification.

For example, if you are planning to split demand between three bidders for risk mitigation, indicate that the three winning bidders will advance to the next optimization-backed RFX round where all three bidders will be ranked against multiple objectives and receive a guaranteed business minimum (e.g. 20%). This can really drive down starting bids and allow you to focus your time on proper supply chain design with the vendors you should be using.

5) Bundling for MRO, Value-Added Services, etc.

Sometimes it just makes sense to bundle a product buy, installation service, and training service from a single vendor — especially when the volume or dollar value of each component on its own is not attractive in a 3-bids-and-a-buy tail spend auction or when a provider who specializes in offerings around the product can use the volume leverage you give it with their product suppliers.

e-Auctions Live!

In other words, e-Auctions are far from dead and have a lot of value if properly applied. There’s a reason auctions have been around for thousands of years. They work! But just like the gambler has to know when to hold ’em, know when to fold ’em, know when to walk away, and know when to run — you have to know when to hold ’em, know when to fold ’em, know when to walk away … and know when to run. And this is where a lot of organizations fail.

First up, they believe if the auctions work the first time, they’ll work the next time. However, as we indicated above, whether or not the auctions will work the second time really depends on the market. If the first auction squeezed most of the fat out of the supplier margin, and prices in the category have went up significantly since the last auction (and especially if the prices have gone up close to, or in excess of 10%), they just aren’t going to work. In this case you have to walk away.

Secondly, some organizations will persist even if preliminary pricing, from market data or initial RFB/Qs, is considerably higher than what the organization expects. Some organizations believe suppliers always start with an excessively high bid which they will lower aggressively during the real-time auction. Sometimes this is true, but if you are sending the RFI out to long-time suppliers who have been through the process before and know that they may not even get invited to the auction if their starting bid is too high or proposal just flat out unacceptable, they are not always going to come down double digits during the auction. In this case you have to fold your plans.

Thirdly, some organizations will try to work with a stakeholder who will not accept any sourcing process that does not involve a reverse auction, believing that they will be just as successful as their peers (claim to be). If a stakeholder is not willing to let the market guide you to the best approach, then you need to run … and move on to the project that involves a stakeholder that is more flexible. Especially if you are only able to strategically source about one third of “spend under management” each year.

Fourth, and finally, if the market analysis indicates that prices have gone down, there is excess supply, and there is opportunity, especially if you open up the auction to new suppliers, even if there is initial bias against the auction or the initial bids come in high, you have to know to stick to your guns and hold fast.

So what can you auction?

The answer here is simple: anything you can legally buy or sell! It’s not just for (indirect) products.

You can auction services.

As long as you can clearly specify the service needed, the education and experience required of the service worker, and any insurance or certifications that are required, you can auction by resource type. All you need to do is determine if you want to auction by time-based rate (hourly, daily, weekly, etc.) or by statement of work, and whether you want expenses included or broken out.

You can auction consumables and MRO.

You don’t have to restrict auctions to (direct) goods and materials that you are reselling or using to manufacture the goods you are selling. You can auction your office and janitorial suppliers, your maintenance parts, etc.

You can auction utilities.

You can auction your land-based and mobile communications. If the buy is big enough, the big carriers will play ball. With so much competition, some of them are more desperate for business than they will let on. If your local energy market is de-regulated, you can auction your energy buy. These carriers will definitely compete as well. The savings might not be as great here, but if you design the auction smartly and bid peak vs. off-hour rates, tie bids to market indices, etc., you can still find savings. Some niche sourcing services providers just focus on energy marketplace, so you know there has to be opportunity there.

You can auction your facilities management and even your facilities leasing.

There’s more than one company out there that specializes in facilities management who will mange your maintenance and upkeep, repair, janitorial services, etc. And most of these will get competitive for a sizeable contract.

Plus, if you need to lease new space, and the market is in your favour (i.e. more spaces to rent than interested parties to rent them), you can auction your lease — especially if it’s a long term lease.

In other words, you really can auction anything if the market is right. It just takes a bit of research, planning, and preparation. But with a modern platform, which comes bundled with templates, category intelligence, and cognitive capabilities, a lot of this work can be simplified and even automated for you.

But the category has to be big to auction, right?

Not really, Many categories that have never been strategically sourced hide savings opportunities in the 10% to 30% range. As long as 10% of the category costs exceed the manpower costs to run the auction, the auction is a candidate. And if the expected ROI is more than 3X, it’s a perfect candidate. Let’s say the cost of a fully burdened resource is 500 a day. If the category is 10K, and the expected savings is 15%, that’s a ROI of at least 3X if the total manpower to run the auction is less than one day. In other words, any category over 10K can be a candidate for a manually run auction. An average organization has lots of these. You just start at the biggest opportunity (defined as the largest spend times the expected return based on market costs and typical saving percentages) and work your way down.

And if you have a cognitive platform that can automate auctions, especially for tail spend products and services against pre-defined templates and workflows, you can run all of these categories through an auction. And you don’t even have to stop when you get down to 10K. Why not auction a short-term 5K services contract for installation of standard replacement equipment to the local mom-and-pop vendors? If the system automates a $500 savings, take it. Especially since the system could automate 50 of these auctions across all your office locations when someone needs to go in and replace all the firewall devices to adhere to your new internet security standards. Fifty times five hundred is twenty five thousand — and that savings could easily exceed the savings you’d get from a national vendor who only has employees in ten of the fifty locations and who would be charging you travel and expense for the other forty.

Auctions may be ancient (literally), but they are still one of the best strategic sourcing and tactical procurement tools in your toolkit when used wisely. So use them.