The modern development of technology is a powerful agent of change, as it contributes to the emergence of new working methods, sources of competitive advantage, high quality of service. The most dramatic symbol of the advanced technology is the Internet. The powerful breakout in the technical infrastructure and services, which are provided by World Wide Web, is considered as a key factor of globalization and has a strong influence on the changes in the modern organizations. The main advantage of the Internet for the companies is that you can get information immediately in usable form in any point of Earth. Even the most exacting custom officers are not able to resist the powerful click of a mouse.
Susceptibility to changes is an important quality of modern procurement structure. Timely and effective usage of the winning technology enables companies to gain a significant competitive advantage. There are two types of technology: electronic vendor selection (sourcing), and e-procurement. The aim of e-procurement is reducing of the order processing costs. Recently, considerable attention is given to e-sourcing a higher level. It means the usage of computer analysis in strategic processes as a result of the intensive optimization, implementation of the artificial intelligence and other innovations.
Let's look at the areas of sourcing in which innovations can be applied.
Cost analysis. The key issue at this stage is how to make expenditures in your company. The rapid movement towards consolidation increases the incentive to cost analysis. Usually the main difficultyin this was is the high range of the specifications. So, for example, my colleagues were about 20 specifications for beer towers, making it difficult to use "economy of scale".
Market development.There are the following sourcing categories in this area: reverse auctions, electronic market development, analytics for decision-making and sourcing services.
Reverse auction is an online tender, which takes place in the real time on the basis of dropping prices. The participants of this event are procuring organization on the one hand and group of selected supplier – on the other hand.
The bidding process is very dynamic, suppliers compete for the contract, offering their own proposals to the client and using the opportunities, which are provided by specialized trading platform. Contractors are provided by information about the status of their proposals in real time (see Graph. 1).
Reverse acution
Graph 1. Bidding results of the reverse auction.
As a rule, a few minutes before end of auction there are extremely attractive offers from the current suppliers which are hurried up to keep the business
You can find more details about reverse auctions in our next articles.
Let me just note that some providers and the best-in-class procurement agencies do not always have a positive attitude to such tools, since they ignore the importance of relationships with suppliers.
E-market development is electronic data systematization. The difference between this tool and reverse auction is that it is not carried out in real time. Another name for this tool is eRFx, i.e. electronic request for anything. The savings which were achieved by this method is comparable with economy which was obtained previously by other methods.
Analytics for decision-making is set of tool which enables to suppliers to increase their participation in bidding designing, based on the knowledge of the particular products, raw and materials. I would like to emphasize the big potential of this area. A couple years ago suppliers can’t batching-up, consolidate cargo, identify the alternative materials. The current technology development takes this process further.
The process allows you to set the customer requirements and provides the opportunity for suppliers in providing of the options variety for the list equipment on a single order or batches.
The suppliers can also define the alternative specification in case of slower delivery risk.
The following figure shows the increase in system complexity in case of structure cost optimization through analysis of price and non-price factors (See the Figure 2).
Integrated factor analysis
The Figure 2 shows that you should take into account also non-price factors in case of cost structure optimization. Currently the decision-making process gets the better of that time when the next approach was dominated: «three bids and a cloud of dust purchasing»
Sourcing services. In the modern economy procurement specialists should concentrate their efforts on the activities that can help them to maximize the return on investments.
Taking this, outsourcing of some share of procurement can be the right strategy for your company. Some companies involves of the suppliers for procurement of some non-core products, especially it refers to the supporting areas.
Examples of non-core materials and services: design services, brokerage services, security services, cleaning services, IT-services, the purchase of materials for administrative and business services (such as food for the canteen), repair services.
Despite the obvious importance of technology in Procurement, I would like to emphasize the fact that you shouldn’t provide changes for changes.
Don’t stick neck out in the transformational changes. Hold off on complex implementation of technology. Check out how well the ywork. Set the clear indicators of their performance. Make sure that every bolt of this complex mechanism is in place. And remember that your basic approach to procurement should be developed before you make a decision on the implementation of appropriate technologies. Ask yourself the following questions:
- Are the objectives of procurement included in a strategic plan for your company?
- Does procurement department tasks related to gross revenue and net profit?
- What percentage of the external costs of your company is controlled by the procurement and is included in a strategic plan of supplier selection?
- How to build the relationship between procurement specialists and experts from other department (technical department, sales and marketing, finance and other departments)?
- What is the level of your personal readiness for business optimization through the implementation of best practice in your daily activities?
Make sure that you have the right answers, and then invest in the technologies that are the best for your company.
