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.