Strategic Sourcing and its Benefits

Procurex has conducted over a thousand reverse auctions that have saved buyers an incredible amount of money. The Procurex approach has proven to be wildly successful over the past decade using strategic sourcing. There’s a whole lot to like about the strategic sourcing approach. They address both of the procurement goals: improving purchasing conditions and increasing procurement efficiency. Let’s lay it out for you:

• Broadening the list of participating vendors: reverse auctions reduce the cost to include a greater number of seller participants than your traditional methods. The pool of vendors can be extended beyond the local area or circle of existing or known vendors to, literally, the world (unless vendor location is a critical issue). A broader list of vendors increases the chances that the purchaser will find a “better or best fit” vendor for each item purchased.

• Increasing competition: with an increased number of participating vendors comes increased competition. This favors the buyer with better pricing and allows vendors the opportunity to compete to the best of their abilities and eliminate the guesswork of “best and final” quotations. This can produce substantial cost savings and/or product improvements to buyers.

• Decreasing cycle time: by concentrating the interaction with vendors into one time frame (the auction), the process of contacting and negotiating with individual vendors is severely truncated, reducing the time required to actually purchase an item. Reducing the cycle time for each item purchase can result in significant savings in procurement resources.

• Increasing efficiency of the procurement function: with an electronic system available to interact with an increased number of vendors and manage activity with them, the procurement personnel can produce better results without increasing the resources used.

• Improving ROI: through more efficient use of existing purchasing resources and lower prices from better competition, the return on capital spent on strategic sourcing and reverse auctions (as well as the entire procurement function) will yield a higher return, improving the buyer’s bottom line overall.

• Gathering information: buyers can develop important data on the pricing and sales terms for various items and vendor behavior by analyzing the activity during an auction. This could prove to be a vital resource for future sourcing. Essentially, a reverse auction creates an environment that more closely approaches the economic ideal of perfect competition: a large number of participants, readily available information, and a narrow decision making process that reduces other influences. By using this objective method, a buyer can substantially improve performance by creating a better market in miniature, reducing cost and improving conditions.

A Word of Advice: Don't be THAT Guy

The world, sometimes, is a scary place. And for as great as money is, it can make the world even scarier. Businesses around the globe are feeling the heat as a result of this worldwide recession. However, all is not lost. An article by Angeline Yeo iterates how buyers from all around the world failed to recognize the procurement opportunities. Here’s the article by Ms. Yeo.

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"Global - Buyers failed to take advantage of a potential 4% savings on material costs resulting from the global recession because of a lack of skilled personnel, inadequate number of procurement professionals in the sector, and the failure of top management to deal with the problem, revealed a new study released yesterday.

The study was conducted by consulting firm Valueneer and polled over 790 companies from 62 countries across all industry sectors.

The survey found the companies were achieving only a quarter of the potential 4% savings, hampered by the lack of qualifications and inadequate number of procurement personnel.

Potential savings went identified because there was not enough attention given to strategic procurement tasks, the study said. The bigger a company, the more likely it is to have a better procurement performance.

The study also said that CEO or CFO-lined procurement organisations have a significantly higher performance record than companies organised on a chief operations officer-organised procurement basis. Clearly defined and documented procurement strategy and implementation, purchase control, optimal tendering and skilled procurement personnel were also considered major factors of success.

Breakdown by region

The survey found that Indian companies showed the best procurement performance, followed by German, Australian and Swiss companies. The retail, consumer goods and automotive industries demonstrated the best procurement performance.

For North America, India is now the fastest growing sourcing market, with China stagnating at a high level. But China is expected to retain its importance as a key sourcing market in Asia. The country is also expected to develop the most rapidly in the procurement sourcing sector among the four emerging countries of China, Brazil, Russia and India.

Global sourcing is expected to continue increasing, with one-third of respondents indicating that they intend to bump up sourcing from markets like China, India and Eastern Europe, the study said.

Source: Yeo, Angeline: “Buyers Missed Out on Savings During Crisis” (http://www.procurement-online.com/news/19211)

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It’s an extremely interesting read. As a member of the procurement community, I cringe when I see articles like this. But that’s the way it is. This is living, breathing proof that companies aren’t utilizing the resources they could very easily have.

A buyer who utilizes the Procurex method will come to us with a wallet with a big wad of cash they’re willing to spend, and a cell phone (since EVERYBODY has one of those). They’ll leave us with another wad of savings tucked snugly between the wallet and the cell. On behalf of Procurex and the strategic sourcing community, PLEASE don’t be THAT guy who ignores the strategic procurement way.