There is more to an effective e-procurement program than cost reduction. While buyers frequently record cost reductions in the range of 30% to 40% when utilizing an e-procurement or reverse auction process, the issues of quality and performance cannot be overlooked. The foundation for successful e-procurement is the supplier database that has been developed and is maintained by the e-procurement service provider. Significant time and capital investment goes into the development of an effective supplier database. It provides the buyer with a recognizable advantage in terms of classification of supplier capabilities, historical performance and the quality of the products provided.
The scope, accuracy and functionality of the supplier database are critical components for buyers when using e-procurement. These elements allow buyers to identify the best sources of supply quickly and cost-effectively, oftentimes uncovering alternative sources that were previously not even considered. This is one of the major advantages of including the services of an online reverse auction service provider like SafeSourcing in the procurement process. Supplier data management is an excellent example of pairing technology advancements with intellectual property to produce an effective, economical support tool that benefits both suppliers and buyers – better pricing, better quality and better sources of supply.
All databases have their start as an information gathering exercise that ultimately is enhanced by those characteristics the developer determines to be valuable to the buyers in the target markets to which the database is to be offered. The information then becomes part of a data model where information sets can be accessed or searched, based on a variety of queries or questions. Most developers follow a process called Universal Description, Discovery, and Integration (UDDI). UDDI is an industry standard established for the development of online databases that contains information on suppliers and the goods and services they provide. This basic information is similar to an online directory. UDDI is intended to help businesses locate suppliers and the products they need, but it is very limited as to the level or depth of information that is always needed to make a proper supplier selection let alone a buying decision. The databases of the professional e-procurement services providers go well beyond this first or basic level of information.
The data models incorporated into effective e-procurement supplier data management programs can be extremely complex and that is where they become much more than a simple online directory. In fact, high quality supplier databases should be able to provide much of the data you might find in the opening pages of a detailed RFI. A simple query such as, “show me all companies within a 500 mile radius of the home office zip code and that provide this defined set of products and that meet the following safety certifications”, should produce an accurate, verified list of supplier options that benefit the buyer and streamline the procurement process. Additional queries are typically used to summarize additional information related to defining the potential suppliers identified. Providing a list of attributes such as business description, sales volume, years in business, corporate officers, product performance ranges, etc. is the logical next step. The drill down through available information continues from here as the results provided become more refined with each query. As you can recognize, effective supplier data management involves the retrieval of valuable information from a data source that includes a substantial number of records, classifies the results according to the parameters defined, communicates the information clearly in an uncluttered format and then directs the associated app as it carries out the required e-procurement action steps. The end result is a summary presentation to the buyer of best pricing from qualified suppliers.
Reverse auctions are web based or Software as a Service (SaaS) applications that let retailers and other businesses find the best suppliers for any product or service they wish to source. Using a web based reverse auction tool, retailers, other businesses or group purchasing organizations can invite far more suppliers to participate in reverse auctions than they could possibly find or manage using traditional sourcing methodologies. During the reverse auction event buyers can review - on one page - all responses from suppliers, data about suppliers, notes from suppliers, product specifications and other necessary information in an instant. Upon the conclusion of the reverse auction, which is typically less than 30 minutes, buyers can review offers, evaluate savings scenarios and award their business to the selected supplier directly from their desktop. It’s quick, easy, economical and well proven to be an effective means to optimize the procurement process.
On demand SaaS by its nature is an internet based application and as such is accessible from wherever you happen to be as long as you have a network connection. With today’s broadband offerings, it literally means anywhere. In addition, since most of the newest versions of SaaS applications are native web based applications, they integrate very nicely with most business infrastructures.
The e-procurement buyer’s data at a SaaS provider is often more secured than the data at many business offices. Since this is the core business of a SaaS provider, the architecture of the application normally has multiple levels of redundancy, failover recovery and routine data backups. SaaS applications are, by-design, easier to update than locally installed applications and buyers usually experience lower feature upgrade charges as well. The return on investment (ROI) breakeven point for an e-procurement solution is usually reached more quickly in a SaaS environment than a locally installed solution - often much more quickly. In fact there are many instances of breakeven ROI’s occurring with the first series of e-procurement events. There are some minimal information requirements that should be maintained accurately and made readily available in any effective e-procurement supplier data management solution. These elements include the following:
- Global and local sources of supply
- Financial information
- Suppliers’ product safety practices
- Product specifications
- Suppliers’ environmental practices
- Supply performance history
- Industry alerts
- Historical procurement details
Procurement when looked at properly oftentimes has the largest single impact on a company’s financial performance than any other area of the company. The fact is that when additional sources of supply compete for a company’s business, it results in compressed pricing and often better quality products or materials. Coupled with the prevention of possible disruptions in a company’s regular source of supply - like the situation businesses have experienced in recent weeks - e-procurement offers many advantages that should not be overlooked.
The benefits to be realized in using e-procurement service providers are driven by effective supplier data management. Technology advancements, enhanced data mining techniques and data management best practices have resulted in significant improvements in the e-procurement process. In today’s tight business environment, technology has proven to be a valuable aid to ensuring profitable operation.
This article was written by Ron Southard and Tim Hull. Ron Southard is President & CEO of SafeSourcing, LLC, a leading e-procurement company that is headquartered in Scottsdale, Arizona. SafeSourcing helps buyers save considerably on costs by providing tools that enhance the ability to do business in a smarter, more streamlined and cost effective way. SafeSourcing increases efficiency, improves customers’ profitability and provides superior value for customers’ stakeholders. SafeSourcing pro-actively supports consumer safety and environmental standards throughout the global supply chain management process.
Tim Hull is President & CEO of TDH Marketing, Inc., a Dayton, Ohio-based marketing firm. The firm provides business development, strategic, marketing and operational planning and implementation for large, mid-size and small corporations looking to develop profitable, technology-driven business growth. Mr. Hull is a shareholder and serves on the Board of Directors of SafeSourcing LLC.