EXPERT COLUMN: Priming Your Organization for E-sourcing Success
In the 10 or so years since e-sourcing technology first made its way into grocers’ procurement departments, the results secured have been remarkable: frequent double-digit savings in both direct and indirect categories, new process efficiencies, higher procurement contract compliance, dramatically lower savings leakage – and the list goes on.
E-sourcing, which can also be referred to as e-auctions or reverse auctions, and is a real-time dynamic negotiation between a host company and a group of pre-qualified suppliers who compete against each other to win the business, has become an essential tool for grocers looking to derive more value from their sourcing operations.
Perhaps more importantly, e-sourcing provides crucial financial benefits to grocers at a time when margins are extremely thin, and empowers procurement teams to be engines of growth and profitability within their organizations by enabling buyers to discover new sources of supply, mitigate risk, uncover potential new products and improve margins. E-sourcing has the potential to transform procurement’s role in an organization.
But despite the obvious advantages, fewer than half of all businesses have adopted e-sourcing – and many grocers that have aren’t experiencing its full potential.
While many grocers use some form of e-sourcing today, industry-wide adoption isn’t where it needs to be. Part of the problem is the number of internal obstacles that procurement faces when trying to implement or promote its use within their business. Some of the top roadblocks include:
- Concerns that long-standing, carefully nurtured relationships with suppliers will suffer.
- Disbelief that technology or outside consultants can replace traditional procurement skills and experience.
- Skepticism regarding vendors’ claims of double-digit savings potential.
- Perception that e-sourcing is tactical, with little tie-in to greater business objectives.
- Lack of supply management staff and resources required for execution.
These roadblocks can decrease the amount of value grocers attain from e-sourcing, or kill an implementation altogether. However, a few simple, straightforward strategies can ensure an entire organization – from top to bottom – will be united in making a commitment to e-sourcing.
Enlist Executives for Support
Company culture comes from the top. Just like any facet of an organization, the c-suite can set the tone for how a company views procurement.
CEOs, CFOs, and/or CPOs can inspire a grocer’s employees to accept e-sourcing as a critical procurement method by articulating and reaffirming the financial impact it can have on the organization, its role in keeping customer retention high, and driving other high-value organizational initiatives such as sustainability and product innovation. Once they experience executive buy-in, staffers will begin to see e-sourcing as more than just a means to an end, and prioritize its use as a crucial business function.
Define, Reward, and Promote Successful Sourcing
To get employees to buy into e-sourcing, procurement managers need to ensure that buyers are invested. The key? Make it easy for them to understand what’s at stake – both for them and the business itself.
Two methods are particularly effective when it comes to highlighting the importance of e-sourcing:
- Build e-sourcing metrics into buyers’ key performance indicators (KPIs) and annual goals. This ties their professional growth to their willingness to adopt e-sourcing, and helps ensure that the buyers that are fully invested in procurement transformation are appropriately rewarded.
- Foster a strong culture that celebrates sourcing success through employee recognition programs. By providing rewards for the buyers that hit particular goals – such as running the most sourcing events, or sourcing the highest amount of spend – and publicly recognizing the most successful savers, procurement managers can instill a positive and competitive team environment.
Leveraging Data for Sourcing Improvement
E-sourcing helps grocers make smarter buying decisions. On the one hand, e-sourcing provides greater insight into a company’s spending landscape, including the categories where the company is spending money, the suppliers used, historical data and market trends. This helps buyers run more effective sourcing events.
For example, if a grocer is looking to put its plastic grocery bags up for auction, e-sourcing makes it easier to look through its company-wide spend to see whether its current supplier is providing any other supplies, i.e., produce bags or deli bags. The grocers’ procurement team can put all three items up for bid in a single auction, dramatically increasing the amount of organizational purchasing power, and ultimately increasing overall savings and improving contract terms.
Road Map to Strategic Sourcing
A focus on strategic e-sourcing can transform a grocer’s entire business, but the first steps are to identify and remove the institutional roadblocks that hold programs back. From there, it’s a matter of replacing apprehension and doubt with empowerment and positivity.
This cultural shift requires participation up and down the organizational ladder. Buyers need to believe in the strategy – and feel rewarded appropriately. The c-suite should set the tone and emphasize the importance of strategic sourcing. And through it all, procurement managers facilitate the shift by ensuring that buyers have the right tools and attitudes required to succeed.
Once e-sourcing is instilled as an essential supply management strategy, there’s no end to the potential value to be delivered.
Steve Whiteman is chairman and CEO at Phoenix-based Intesource, whose latest report, “Overcoming Internal Roadblocks to Sourcing Transformation,” is available now for download.