What Is a Good Reverse Auction Procurement Strategy?
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There are many terms when it comes to all levels of procurement management, which is a smaller part of the overall supply chain. While procurement often is a blanketed term that refers to the entire process, procurement technically refers only to the execution of a contract between a supplier and purchaser (or the organization who is procuring the service or good).
Sourcing is the term used when the purchasing department is searching for the right supplier (or group of suppliers) to fill a particular need, typically a good or service, to fulfill a purchasing order. Many companies and organizations have delved further, looking to tools such as advanced sourcing optimizers; to streamline this part of procurement management.
Sourcing isn’t always a simple process, and any tool that makes it simpler is a welcome addition. Read on to learn more about how an advanced sourcing optimizer may help your business, and how advanced sourcing and supply chain management fit together in the bigger picture.
Advanced Sourcing Optimizers and Tools: What Are Your Sourcing Challenges?
Determine if advanced sourcing techniques are a good fit for your organization by looking at your sourcing challenges. Sourcing can certainly be headache-producing, but if you’re a larger company working with myriad suppliers, with many buying locations, it can be exceedingly tough. You may have:
- A larger team of people working on analyzing bids
- Higher thresholds of sustainability and risk
- Pressure as you’re working with more stakeholders
- More operational rules to consider
- Limitations in the sourcing tools you’re already working with
If these scenarios sound familiar, working with advanced sourcing optimizers and similar tools may be a good choice.
Advanced Sourcing Optimizers: What Is Optimization?
Optimization, as it refers to sourcing in procurement, refers to the optimizations made when it comes to decision-making. Suppose you’re working with larger teams in your procurement and purchasing department, and are vetting multiple suppliers and vendors (with numerous levels of bids and auctions).
Suppose you are using advanced sourcing optimizer software, after each sourcing event. In that case, the software can do the work for you, running facts, figures, operational rules, and risk through analytical processes to give you “what-ifs” and help you make the right decision. Further, Optimization can give you the “what ifs” in minutes which can lead to better outcomes with less pain. Optimization can help you understand the related cost of your typical operational rules, such as :
- One supplier per country or per location
- Incumbency (in total)
- Trusted sources of supply (similar to incumbency)
- Payment terms
- Volume discounts
- Alternate freight options
Advanced Sourcing Optimizers: Benefits of Optimization
Like with many other procurement areas or the supply chain, if the optimization isn’t mutually beneficial to both parties (operations and procurement ), it may not be worth the trouble. So, the trick is to find optimization that benefits both sides. Generally speaking, the benefits of advanced sourcing optimizers save time for both parties. When is this beneficial?
Usually, it is beneficial in situations when:
- There isn’t the possibility of a single supplier “award”
- Lowest cost or a cherry-pick supplier “award” is not an option
- There is a large number of suppliers from which to pick from
- There is a large market basket of items
- The determining factor for an award does not relate to price (e.g., incumbency, diversity, etc.)
In sourcing, or procurement, you typically want the most savings but struggle to find an optimal award scenario that your plants and operations team can work with that is also close to the cherry-pick savings amount. Optimization allows both procurement and operations to quickly understand each operational rule’s cost and find a compromise that works for everyone.
To find out more about advanced sourcing optimization and particular techniques, contact us today at EC Sourcing Group by calling us at 866-353-9737, option 1 to see how we can help streamline your sourcing process.