What is eSourcing?

Sourcing is part of the procurement process, by definition it means to obtain and find out where something can be obtained or gathered. Procurement as a whole generally covers any interaction with suppliers over the full life cycle of a purchase. This could include the normal day to day purchasing process through to stakeholder interaction and even supplier audits.

eSourcing, also known as Electronic Sourcing, is using web-based technology to facilitate the sourcing process for both buyers and suppliers in order to negotiate more effectively. Commonly known as eTendering, eSourcing solutions offer a secure interactive, dynamic environment for procurement departments to streamline their process of buying and centralise information.

eSourcing solutions are used to identify the most suitable providers in the market, ultimately helping organisations to generate savings in time and costs.

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The Challenges Why eSourcing?

Highlighting why it exists

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eSourcing is an integral part of the wider e-Procurement process. With the evolution of globalisation and the necessity of businesses to have strong and diverse supply-chains. The modern process of identifying, negotiating and managing suppliers requires specialised online tools to help streamline the process. eSourcing is often seen as the foundation for long-term success of a supply-chain.

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The typical process involves inviting new and existing suppliers to a tendering event, collecting the relevant supplier information to make an informed decision, the process of suppliers taking part in the event, before evaluation of results and assigning contracts to the most suitable providers.

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Market Dojo’s eSourcing solution enables users to run various tendering processes including; Reverse Auctions, RFQ, RFI, RFP, Japanese Auctions, Forward Auctions, Open and Ranked Auctions and more.

What is the eSourcing Process

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Request For Information - RFI

An online sourcing process usually begins with the distribution of detailed RFI’s. RFI’s are requests for information, or otherwise known as pre-purchase questionnaire’s (PQQ).

RFI’s or PQQ’s are used to identify the suitability of suppliers before being invited to any tendering event. Without eSourcing, this part of the sourcing process would usually be distributed by procurement teams through Microsoft Excel, emails, or by post.

By using an online solution, teams can effectively compare results and identify which suppliers are suitable to tender. Being detailed with RFI’s, enables teams to filter suppliers and ensure compliance.

In Market Dojo, there is an additional step before tendering, that allows users to create a pre-qualification survey. The pre-qualification survey is a series of questions sent to all suppliers, which must be completed before accessing the full questionnaire.

They must give the correct response or they are denied access. For example, if you wish to keep the information in the questionnaire confidential, you could ask all suppliers if they intended to maintain its confidentiality. A no answer would deny them access to the rest of the information and questions.

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Request For Quotation - RFQ

Naturally, once you have a suitable pool of suppliers defined, the next step is to begin requesting quotes.

The RFQ (Request For Quotation) process can be extremely useful for establishing current market pricing before going to tender. Any quotes received could be used as final pricing if suitable, depending on what your strategy is and whether there are any time restraints to consider.

Once you have your quotes, these can be used to define starting points for any further auction. With a more defined range of quotations, you can identify what type of auction is right for you

If driving down costs is your primary objective, it is important to consider whether you would like to weigh the event in any other areas. This could be anything from delivery times or more specific quality standards.

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Request For Proposal - RFP

Alternatively the next step in the process might be a request for proposal (RFP). This is typically a request for a formal document containing details about the proposal in direct relation to the project, as well as bids from contractors for the completion of the project. An RFP can contain more information than just an RFI or RFQ as it contains both aspects of the supplier information, how the supplier will deliver the requested services and the bids themselves.

Most organisations prefer using RFPs, and, in many cases, governments only use requests for proposal. A request for proposal for a specific program may require the company to review the bids to examine their feasibility, the health of the bidding company, agree to the defined terms & conditions and the bidder's ability to do what is proposed.

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eAuction

Once you have a pool of qualified suppliers and their quotes, you might want to consider running a competitive esourcing event, such as an eAuction.

eAuctions are a digital tendering process, where negotiations are made through a dynamic bidding process. More often than not, eAuctions are used to identify the best price for goods or services in the market. This can be done through a number of different ways, however universal to all different types of auctions is the ability for participants to compete against each other for an increasingly competitive value.

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Reverse and Forward eAuctions

In a reverse auction, sellers compete for a contract to supply goods or services to a buyer. Unlike a usual forward auction, where buyers compete to purchase, reverse auctions work in the opposite way and are driven by suppliers.

Once the buyer has outlined what they are looking to purchase, suppliers are invited to submit their lowest bid, to secure the contract of work. This method creates a gradual price decrease in what the buyer is left to pay.

Reverse auctions are a great way for buyers to identify the best price in the market and ultimately generate savings.

It is worth considering however, that price doesn’t have to be the only focus of running an auction. Often a reverse auction is carried out on “buyers choice” meaning that the buyer has the freedom to award any one of the suppliers the business, based on other factors, such as service levels, quality and so on. This protects the buyer from taking the lowest price, if they doubt whether a supplier can provide the same service at that price point.

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Open, Ranked & Japanese eAuctions

Open, Ranked and Japanese functionalities can all be run through forward or reverse eAuctions. By adding these elements to the auction process, the buyer is afforded various opportunities to increase competitiveness.

Open auctions allow suppliers to see the leading bid from their competitor's at any time. If the host decides to enable ranking, suppliers can also see where they are ranked in terms of bidding. This means every supplier can see where they compare to the winning bid at any point of the eAuction, creating an open playing field. In this auction, bids can only be submitted if it betters the current highest/lowest price.

Ranked auctions should be utilised when a buyer is expecting several bids around the same price point. Ranked auctions assign suppliers ranks, based on where their bid compares to other live bids. For example the highest bid in a forward auction would rank as number 1, similarly to the lowest bid in a reverse auction. In terms of bid value, all suppliers will only know the value of their own bid. The ranking system can encourage competitive bidding between suppliers as only the supplier with the leading bid is aware of what the current best price is.

Finally, Japanese Auctions. This eAuction operates by eliminating suppliers who are not able to match gradually decreasing assigned bids, until only one supplier remains.

This type of eAuction works differently to forward and reverse auctions, in the sense that it is driven by the buyer and not supplier bids. Suppliers must meet a pre-decided value or will be eliminated from the process. The value decreases over time, so the supplier must decide each round whether they would like to match the value or leave the process.

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Benefits of eSourcing

While eAuctions and making savings are a key part of the eSourcing process, they are by no means the only benefits.

Market Knowledge - Current Spend Analysis

Gather insights into current market pricing, to analyse your spend against your competitors. If you haven’t engaged with new suppliers in a while, eSourcing allows you to learn more about the market, which could have changed since you last engaged.

Minimise risk and champion compliance (Supplier Assurance)

A detailed RFI and questionnaire process, enables users of eSourcing platforms to maintain compliance at all times. By fullying qualifying suppliers, users are able to mitigate and minimise any foreseeable, or unforeseeable risks.

Save Time (Automation process)- Bid analysis

As well as generating savings in costs, the time that eSourcing can save users is of equal importance. Having an automated negotiation process, will ultimately lead to the procurement function becoming more efficient. eSourcing eliminates timely processes such as analysing bids and streamlines communication.

Identify new suppliers

Should a company find themselves considering or looking for an alternative supplier, eSourcing presents a time efficient way of narrowing down the market. Even if a supplier doesn’t win a tendering event, their data is stored in the eSourcing platform should they be needed again.

Create better relationships with suppliers

Having an efficient method of negotiation is beneficial to both parties. Submitting bids and answering questionnaires can be time consuming for suppliers, so if there is an effective method in place which is easy to manage this is likely to increase supplier engagement. Having a centralised platform for communication will also ensure there are no missed emails.

Visibility

Utilising one platform rather than juggling emails, PDFs and Excel spreadsheets, ensures visibility during the tendering and sourcing process. Managing the sourcing process becomes a lot easier with all data and communication stored together. When it comes to auditing, all information can conveniently be revisited.

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About Us

Market Dojo is a UK based software company offering Software as a Service built by procurement professionals. Our solutions offer an array of capabilities, to help procurement professionals get the most out of their sourcing and supplier engagement activities. Whether you're looking to run 'on the spot' eAuctions, rearrange your Supplier Onboarding process, or simply a safe place to store your all important supplier contracts, we have the tools to help.

All of our products are fully on-demand to ensure the streamlining of the procurement process to add real value and mitigate risk. This is achieved through easy to use, yet capable eSourcing and supplier engagement applications which are available on-demand or with enterprise licencing.

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