The advanced functionality in modern sourcing systems can be utilised to help efficiently run complex sourcing events. But what actually constitutes a complex sourcing event, and why should you consider increasing the complexity of your events?
There are a number of reasons that a sourcing event might be considered complex. Firstly, event complexity can be driven simply by the number of line items; even a simple category such as stationery typically includes hundreds of line items, making it a potentially challenging sourcing event, depending on how it is handled. A complex sourcing event could also be defined as one that captures more than a simple price.
There are many ways to capture additional information from a sourcing event, but the below methods are most commonly used.
A large numbers of questions:
Utilising questions within a sourcing event allows you to capture additional information from the supplier that can be used to understand their capabilities, gather detailed data on the goods or service being purchased and record the supplier’s acceptance of your purchase requirements. However, introducing a large number of questions creates significantly more work for your suppliers to complete. To avoid this becoming an issue, buyers need to ensure they fully understand their requirements so that they can be translated into qualitative questions that will not only guide the suppliers to provide a unified response, but additionally promote a fairer, easier evaluation.
The more information you can obtain as a buyer, the better a position you will be in to negotiate with your suppliers. Capturing everything you need to know during the sourcing event gives you negotiating power, and allows you to compare supplier responses side by side.
Complex questions require the supplier to enter more than a simple value, text or checkbox. Typically, this will involve the supplier completing a table of values or uploading an attachment. The more complex the question, the more likely that suppliers may run into issues when entering the data.
Questions that lead the supplier to enter their information in the format you require will allow you to compare responses side by side and obtain the correct level of detail needed for analysis.
The use of lots with supplier visibility rules:
Bundling items into lots is a common way to structure a procurement sourcing event. Taking this one step further and configuring visibility rules to allow suppliers to only see specific lots creates a more efficient event for the suppliers, but takes longer to build the event.
Using visibility rules allows you to run one event rather than many and removes the risk of suppliers entering zero priced bids or bidding on something they should not.
One of the many scenarios where this adds value is when running global events in which some suppliers are only capable of supplying to one country.
One of the most complex sourcing methods available is the use of custom formulas. In this, you ask the supplier to enter a detailed breakdown of the total price for analysis and your formula then calculates the total price. On top of being difficult for the supplier to respond to this type of event, there is often reluctance from the supplier to provide this level of pricing information. An example formula would be:
(Raw Material + Manufacturing + Packaging + Shipping) *Duty = Total Price
Having this level of pricing detail not only provides you with a better understanding of the price make up, but also provides the opportunity to negotiate specific parts of the pricing.
Suppliers often structure their pricing in tiers which can be hard to capture and analyse in a sourcing event; running a complex sourcing event where suppliers can enter their prices for different tiers takes more time to setup and is more difficult for suppliers to respond to.
Obtaining pricing for different tiers enables you to strategise your ordering methods to ensure the best price can be obtained from the supplier. Once a strategy has been decided upon you will have visibility of the true spend and the level of savings actually achievable.
Ensuring suppliers are bidding like for like:
There are often factors that mean suppliers involved in your events are not bidding like for like; for example there may be a cost of change for everyone other than the incumbent or certain suppliers cannot provide the level of service others can. Configuring your event with extra costs for certain suppliers, which can be viewed as a penalty, can either be handled in a hidden way or agreed with the supplier. Building these extra costs into the event takes time and if you decide to work with the suppliers on these then the amount of time can be significant, however working with the supplier will help build your relationship and put more pressure on the supplier to lower prices due to being aware of the penalty they will receive.
Obtaining like for like bids enables you to perform side by side analysis and ensures you are working on the total cost when analysing and awarding the event.
Understanding what constitutes a complex sourcing event is the first step to realising the benefits that they can bring.