How to Successfully Implement e-Sourcing in a Global Retail Environment
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| Ethics in sourcing by David Bush March 5, 2007 | Go Back |
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I recently sat down with a former Financial Controller of a Global Retailer to look back at his experience of implementing an e-Sourcing solution in Europe. This is the first in a 3 part interview.
Q1: How/Why was the decision made to use e-Sourcing?
A1: The initial decision to look at e-sourcing was made by Corporate. Reason for implementation in Europe was the creation of a competitive environment to tender all contracts related to indirect expenses. Focus on expense control should be a key performance indicator for any company, especially when operating in a very competitive environment (i.e. retail). It will free-up/save capital to invest in the long-term success of the Company.
In addition to the competitive environment, it also allows a Company to ensure compliance to the Procurement Policy, tracking of contracts and streamline the tender process across all departments.
Q2: What was the process for selecting and deciding to use an e-sourcing provider in Europe?
A2: Initially one specific e-sourcing provider was considered to be the world-wide provider for our organization. We concluded that their system was not user-friendly and flexible enough to meet our business needs. Eventually we decided to go with another solution because not only was the tool easy to use, but it also provided the flexibility and tools needed for easy implementation within the existing processes. With the e-RFx tools it forces buyers to think about business requirements and ensure proper products/ services are purchased to run a successful and efficient business.
Q3: How was the tool implemented?
A3: After the decision was made to implement the tool, a training session was conducted for all European buyers of indirect expenses. The message there was that this tool will provide them with an easy platform to competitively tender contracts and ensure the best possible pricing is obtained for the Company.
When the first auction was set-up we invited the European Management Team to showcase the tool and discuss the potential benefits to the organization. The first auction immediately resulted in a 20%+ year-over-year saving, which helped get buy-in from all key players within the organization.
Q4: What was the key to making this implementation successful?
A4: The key to a successful implementation can be split in 3 steps:
1) Select the technology that best meets your business needs. This is important for any technological implementation/enhancement and e-souring is no different. The tool should be flexible enough to tender all your contracts without being too complicated and/or time consuming for the user.
2) Ensure buyers are not only comfortable with how to use the system (i.e. Training) but also assist them whenever needed (with analysis, search for suppliers etc.) Schedule regular cross-departmental meetings to discuss lessons learned and frequently monitor their activities in the system. Never assume buyers know what they are buying and how they should buy it, challenge them and provide alternatives.
3) Obtain buy-in from Senior Management!
Q5: What didn’t work as well?
A5: Make sure buyers understand the importance of frequent communication with the suppliers during an auction (this doesn't change vs. a traditional tender) and ensure suppliers understand the process. This will prevent surprises during or after a completed auction and is critical for the success of future auctions. Unpleasant experiences will prevent suppliers from participating a 2nd time!
Q7: We had a few postings last year on e-sourcing Ethics/Market Integrity. I know that through some of the consulting support your organization received in the early stages of implementation, this was one of the key topics addressed. Can you comment on a few of the successes and failures when it came to ethics?
A7: During the first auctions it became apparent that buyers where not necessarily inviting suppliers to whom they where prepared to award the business too. Their motivation was to increase competition and obtain price reductions vs. their incumbent without changing suppliers. Some comments were:
“I am only inviting this supplier because I want to increase competition”
“I will not change supplier because my incumbent knows exactly what I want/need”
“Only my incumbent can completely satisfy my requirements”
In some cases, these arguments were made because of the long trading relationship with the incumbent, in others it was a lack of knowledge of the marketplace.
Q8: What were some of the most challenging behavior you remember dealing with?
A8: On the buyers front it was the skeptical attitude of buyers who have been dealing with their incumbent for years and the conviction that they already had the most competitive pricing and the best supplier. When probing them on when was the last time they tendered a contract, challenged their supplier, leveraged spend and/or looked at new solutions in the marketplace, most of the time the answer was years ago…….
On the supplier side it was mostly convincing suppliers to participate in the auction, especially when they had had negative experiences in the past. When explaining that the purpose of e-sourcing is to streamline the tender process for buyers and suppliers, ensure an equal playing field for all participants and have one central point of communication, most suppliers decided to participate.
Q9: How did you ensure an ethical e-sourcing process was applied across the organization?
A9: There were 3 main initiatives taken:
1) During our weekly meetings with all buyers in the organization we frequently discussed ethics. The key message during these meetings was that we should only invite suppliers to whom we are truly willing to award the business too.
2) We revised the Procurement Policy to force all contracts above a certain limit to be tendered through e-souring and ensure suppliers understand that non-participation automatically excludes them from the tender process.
3) Training: this was to look at ways to level the playing field for all suppliers when there are product/service differences, supplier communication best practices, and supplier selection/qualification.
Q10: It’s not fair to put all the heat on the buyers, it’s important to ensure suppliers behave ethically as well. Did you face any issues in this area and if so, how was it handled?
A10: We had instances where suppliers tried to bypass the e-sourcing tool and communicate directly with the buyer. Often this was the incumbent supplier trying to retain the business without having to participate in an auction.
We solved this by reiterating to buyers that all communication should be done through the e-sourcing tool and suppliers need to understand that they will only be considered when participating through the online process. Award decisions had to be approved by the Procurement Manager to ensure policies and procedures were followed. Support from Management in this case is crucial.
Q11: What were the key benefits of having implemented an e-sourcing solution and what would you say were the main lessons learned?
A11: The initial key benefits achieved were:
• The creation of a competitive environment for tendering all indirect expense contracts. • Simplification and standardization of the tender process. • Ability to track compliance to the Procurement Policy. • Provide buyers with tools to make better business decisions.
On a more long term basis, by having created a knowledge center for all indirect expense contracts we started to use the tool for forecasting and budgeting expenses.
The main lessons learned were:
• Ensure you have a dedicated resource available during the implementation and first 6-12 months to train/support all users and ensure maximum benefits of the e-sourcing tool are achieved. • Conduct frequent meetings with all users to share experiences/ideas. • Obtain buy-in from senior management. • Monitor the e-sourcing process and award decisions to ensure ethical behavior is applied.
Q12: Any advice to companies thinking of/or currently implementing e-sourcing?
A12: - Obtain buy-in from Senior Management (invite them to an auction) and make sure everyone is convinced of the benefits of e-souring vs. traditional sourcing.
- Finance should take the lead in the implementation of e-sourcing (when there is no Procurement department). They have the information (actual expenses/ budgets/reporting etc.) and should be the key-driver.
- Create a Procurement Policy to encourage maximum use of the e-sourcing tool.
- Assign a dedicated resource (internal if you have one, otherwise consider looking externally) to train/coach buyers and ensure compliance with company policy.
- Support buyers not only with Training on the technology but also with guidelines on how to properly interact with suppliers and make sure they take advantage of all the tools in the system.
