Sourcing systems come in several different types:
- A combination of email and spreadsheets (the most common)
- Legacy software, typically built in-house
- Sourcing modules from on-premises Enterprise Resource Planning (ERP) implementations
- Cloud-based sourcing modules offered by ERP vendors
- Cloud-based source-to-pay Independent Software Vendors (ISVs)
The purpose of these systems is to reduce the transactions costs and opportunity costs associated with the purchasing business process.
Transactions costs span the following activities:
- Managing workflows across the different constituencies of the buyer firm
- Sharing data across the buyer firm
- Onboarding suppliers and monitoring their ongoing risk with a vetting process
- Developing relationships with suppliers
- Sharing information about the buyer’s business with suppliers so that they can understand the needs and challenges the buyer seeks to overcome
- Researching markets for individual vertical categories
- Drafting and finalizing the Statement of Work
- Perfecting the Request for Proposal or Request for Quotation
- Delivering the RFP to relevant suppliers
- Communicating with interested suppliers while the RFP window is open
- Receiving the proposals
- Reviewing the proposals
- Scoring the proposals and ranking them
This sounds like a lot of work. It is.
While, logically, it might seem like the right thing to do is to have one comprehensive system, there is a case for having several systems in parallel.
The truth is that procurement has many facets. Buyers need multiple systems (or at least multiple complementary tools) for these different dimensions of the acquisition problem.
No one system spans all these functions. No one system is suited for every use case.
Let’s start with ERP systems and source-to-pay systems. We need to recognize a couple of things.
First, these systems have turned the analog business process of soliciting bids into digital one without taking advantage of the transition to adapt the procedure for the way we do business now. Arguably, the way companies source goods and services is substantively unchanged since the days of the Industrial Revolution when buyers used it to purchase commodity goods, not complex, long-lasting service relationships.
Second, the ERP systems and source-to-pay systems are expensive. With procurement taking up 40-70% of revenue for companies in the United States, systems providers argue that anything they can do to help lower transactions costs or the total cost of ownership of the finally purchased items more than justifies a six or seven figure annual SaaS fee.
Third, these systems vendors designed and implemented the architecture for their software tools years ago. The user experience may not be something that is well suited for contemporary sales and procurement staff, particularly given the demographic turnover on both sides. Is an approach that was built for an industrial application useful for the acquisition of cybersecurity tools, for example?
Fourth, mindful of the pushback against higher costs, the large systems vendors keep adding features. Buyer users feel tremendous stress when confronted with annual price rises justified by the rollout of incremental new functionality that they are unlikely to want or to put into regular practice. Of the hundreds or thousands of features on some of the older, more sophisticated systems, how many do people use on a daily basis? Ten? Fifty?
Fifth, the incumbent structure embedded in each approach is one buyer interacting in a closed loop with a set of previously vetted vendors. It is too time consuming and difficult to solicit a proposal from a vendor who is not a vendor-of-record already. This is fundamentally a one-to-many approach. What if you could solicit any supplier? How would procurement change?
Sixth, many of these approaches, in codifying the bureaucracy, have an incentive to make things complicated and complex (i.e. with cascading consequences of failure)
Seventh, there is a persistent tension between the tendency to centralize procurement activities and those who would push acquisition authority to the most logical local level. Increasingly, procurement takes place lower down in the organization.
The biggest problem, however, may be that not all suppliers are the same. It is also true that not all vertical categories are the same. With new imperatives like social procurement coming to the fore, the procurement problem grows even more complicated.
One size does not fit all.
A system that might work well with large suppliers will not fit the constraints of small and medium-sized vendors.
A system that has a ton of features may not be best for different groups within the buying organization, say at the divisional level, who have simpler requirements.
A system designed for corporate bureaucracy may actively discourage businesses owned by minorities, women, Indigenous people, disabled people, and veterans from engaging with the buyer, contrary to key strategic direction.
By layering different systems intelligently, sophisticated buyers can plug these gaps and get the best problem-solution fit and the most competition on price and service from their suppliers, across the spectrum, while lowering transactions costs and reducing opportunity costs.
We sit as a layer in the procurement technology stack to augment the existing approach to RFPs/RFXs. We do this by adding proven tools from financial markets to whatever you are using currently. These include central clearing of vendor administration and data, as well as social networking.
With EdgeworthBox, buyers can onboard new vendors rapidly, enabling the solicitation of suppliers who have no antecedent vendor-of-record relationship. We have public and private repositories of structured data of live and historic RFPs and historic contract data for market intelligence and speedier RFP cycles. Our social networking functions include profile pages for advertising organizations and individuals, as well as a messaging platform that connects buyers to buyers, suppliers to suppliers, and buyers to suppliers. Suppliers join for free. Buyers pay an organization license with unlimited seat licenses. Give us a shout or take us for a free trial.