eSourcing, sometimes called electronic sourcing, uses web-based systems to collect and compare information about several suppliers to help the buyer select a preferred provider.
The technology offers several benefits; it is designed to assist organizations in generating savings from their supply chains, increase the visibility of key business information, and reduce the time it takes for procurement professionals to do their day-to-day tasks.
Electronic sourcing is a small but important part of the overall eProcurement process. It includes:
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Before doing business with any supplier, it is imperative to identify if they’re appropriate to do business with. Organizations achieve this with pre-purchase questionnaires (PQQ), which are detailed documents designed to assess a supplier's suitability. PQQs are common in the public sector, but the process can be called a request for information (RFI) in other industries.
In the past, procurement teams would have to manually fill out these documents by hand or in software such as Microsoft Word or Excel. With electronic sourcing, the process is streamlined, as suppliers can upload their answers into the eSourcing software, which is distributed directly to the business. It allows organizations to collect information from more suppliers in a fraction of the time and ensures consistency of completion.
Invitation to tender (ITT), also known as a call for tenders, generates competing offers from different suppliers. Once they have filled out a PQQ and have been selected to go to the next stage of the sourcing process, suppliers are sent an ITT.
The ITT document specifies all the organization's requirements, including what goods or services are required, and outlines a range of information the buyer will require the supplier organization to submit about its policies, practices, and processes and how the evaluation process will be managed. Suppliers fill this document out to be taken to the next stage of the procurement process.
In this process, price is the primary factor for choosing a supplier. Buyers send out forms for suppliers, asking all of them to provide prices for the services they can render.
Request for quotations (RFQs) can be used before an RFI and ITT if a buyer is seeking to understand price ranges in the market.
It is worth noting that all three of the steps above are interchangeable.
Once the requested evaluation formats have been sent and received, an evaluation process occurs. The prospective buyer evaluates whether the supplier's information renders them a viable candidate.
In the past, this process involved manually sorting through swathes of paperwork supplied by the suppliers invited to tender.
But electronic sourcing changes this – and provides a sophisticated suite of analytics, dashboards, and tools like automated scoring – allowing users to automate evaluation process elements, saving precious time.
Much like RFIs, PQQs, and RFQs, eAuctions can be run at any point in the eSourcing process. It can follow a tender, be used after a tender process, or run as a standalone event for finished goods.
Once suppliers have been selected, they are invited to participate in an eAuction – a process whereby suppliers bid on the right to deliver the contract for which they’ve been invited to tender.
Many eSourcing tools offer different eAuction types, each with unique benefits. Auctions are designed to encourage prospective suppliers to compete with one another and, as such, deliver the best possible deal for procurement professionals.
Once the tendering processes and/or eAuctions have concluded and a buyer has been selected, a contract is awarded to the winning supplier.
Elements of this process can be automated, automatically sending the winning bidder a contract.
eSourcing provides businesses with a wealth of benefits. We’ve listed some of the most common benefits below.
By accessing a broader range of suppliers and leveraging different eAuction strategies, eSourcing presents significant cost savings for procurement teams.
Electronic sourcing also speeds up the time it takes to award a contract, and it does this by reducing the time procurement specialists spend on the tendering process, freeing up time to spend on other tasks.
eSourcing improves transparency between buyers and suppliers. By using a portal, teams can view all tender opportunities from a supplier, including deadlines, status, and other key information.
Since all procurement-related documents are stored in one place, auditing is made simpler - as is compliance with regulatory procedures - with a system transparently displaying how and why a supplier was selected.
Based on a survey by the Construction Marketing Association, 29% of professionals in the construction industry don’t believe their Request for Quotation processes are effective. Other industries face a similar challenge.
An electronic request for quotation (eRFQ) system can help a business keep track of its quotes and create simplified communication channels with vendors.
eAuctions, or electronic auctions, can come in several varieties. For example, a reverse auction allows many sellers to compete for a buyer’s business. The buyer sees all offers and chooses the one they prefer.
Other electronic auctions feature an auctioneer announcing bids as they come in. Some auctions start at a high price and power incrementally until buyers accept the price.
The value of eAuctions is that they give procurement teams competitive pricing while saving time because suppliers can work up only partial proposals.
Suppliers can benefit from eAuctions, too, because they are open and allow smaller businesses to compete against their larger competitors.
This acronym stands for electronic request for [x]. The x can be a proposal, quotation, information, or tender.
All of these refer to a similar activity – a buyer requesting information from suppliers for evaluation and comparison.
When structured effectively, eRFX software can help a business compare apples to apples when examining offerings from multiple vendors.
An online platform to advertise your sourcing needs is only part of the solution. You must provide detailed specifications on your needs by being clear, concise, and direct.
More information can be needed to speed up responses or improve the quality of bids. Suppliers benefit from clear needs statements because it allows them to find business opportunities that fit their specific strengths.
Know how to use eSourcing software effectively. There may be better sourcing methods in some situations.
Highly customized products and services may need to mesh better in an eSourcing environment. However, raw materials and manufactured components may be obtained at considerable savings when using eSourcing.
Get more from your eSourcing systems by following our eProcurement health check.
eSourcing is a collection of digital tools that helps to streamline and simplify the procurement process. A procurement team can obtain and compare bids on products from suppliers and vendors from a single online portal.
Some of the different types of eSourcing tools include:
Businesses can realize improved supplier management by implementing eSourcing software. It reduces costs, saves time, maximizes efficiency, and provides detailed information on suppliers so a company can fully evaluate its supply chain partners.
Some barriers to effective eSourcing implementation may be:
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