E-Sourcing: Does It Destroy Value?

The debate over the impact of e-sourcing on buyer / supplier relationships rumbles on, with an article in Supply Excellence that claims e-sourcing and supplier relationships are ‘a match made in heaven’.

IACCM research is not alone in finding that most suppliers disagree with this assessment. As I observed in an article last year, which was specifically addressing reverse auctions: “Logically, the (buyer’s) terms and conditions associated with a reverse auction ought to be considerably less onerous. The customer should – in the interests of gaining the lowest price or cost of ownership – be prepared to take on higher levels of risk and responsibility for selection and use.

Yet as most suppliers know, the reverse is generally the case. Buyers want to have their cake and eat it. They demand not only conformance to specifications, but then also impose onerous terms on the supplier – indemnities, liabilities, often also areas like IP rights and liquidated damages.” Such attitudes do not create a framework for open, trusting relationships – which is why many people within customer organizations share the supplier’s hostility to e-sourcing.

Is The Problem The System Or The People?

The experience of most suppliers is that buyers hide behind the e-sourcing process and use it to impose ‘compliance’. The Supply Excellence blog claims that this ensures transparency and enables suppliers to better understand and address their weaknesses, including the ‘weakness’ of an uncompetitive price. They quote Oracle, saying “E-Sourcing has actually proven to help increase margins for some suppliers”, by forcing them to address inefficiencies.

I have no doubt that e-sourcing has delivered many benefits. But I am also certain that in many cases it continues to undermine economic value and relationships. The big question to be answered is whether those failings are intrinsic to the software products (and if so, what limitations should be placed on their use?), or due to the inadequacies of those using the software.

Questions To Be Answered

Specifically, many e-sourcing events stifle discussion. They seek to make the areas of comparison narrow and to discount things that the buyer has either decided have no value, or perhaps has failed to imagine. Second, they tend to eliminate judgment. Relationships have many nuances and while software can undoubtedly help in narrowing the field, it can also eliminate perfectly good matches because it has no sense for ‘chemistry’. Third, e-sourcing struggles to consider life-cycle performance. It tends to base decisions on today’s environment, eliminating history and ignoring future change.

But to be fair, these criticisms are often levelled at Procurement regardless of whether or not they are using e-sourcing applications. The evidence suggests that it is Procurement’s lack of accountability for longer-term relationship outcomes that undermines the selection process. This results in a ‘one size fits all’ approach to supplier selection, regardless of the strategic significnace of the acquisition. And this is why e-sourcing often gets maligned. It is a visible and outward manifestation of inappropriate or unskilled purchasing behavior.

So in my view, e-sourcing does indeed bring benefits in some situations. What I would really like to know is whether it can in fact bring benefit in all situations, regardless of complexity? And if so, how should its use vary to ensure it really is a tool that offers mutual buyer – supplier value through stronger and more collaborative relationships? 

I would love to hear from e-sourcing suppliers or consultants with definitive answers to these questions; or even better, from an organization that can point to ways it has implemented such tools, driven greater internal efficiency, AND built greater supplier loyalty.