Smart Procurement – Everything a Procurement Professional Should Know
A procurement manager should always know about smart procurement. It’s only natural since years of experience in working in procurement should already give you the edge you need in creating really good procurement processes.
For this article, we’re going to talk about smart procurement. We’ll define what it means exactly and learn more about how you can take advantage of smart procurement for your processes.
After reading this article, you’ll be able to make smarter decisions with your procurement processes.
Smart Procurement is Online Procurement
As you’ve already guessed, the reason why it’s called smart procurement is that it’s procurement that is based on an online platform. Hence the reason it’s called online procurement.
While e sourcing is now being called the future of procurement, there is still more about the process than meets the eye. No, we are not going to transform e sourcing into some procurement magic formula, but rather we at Procurement Tactics like to explain about e sourcing a little bit more to educate our readers.
E sourcing is pretty much a shortened nickname for electronic sourcing. We all know what sourcing is; it’s the process of searching for the right suppliers of the materials that a company or procurement team needs to buy or procure. We’ve already established that definition thanks to our article on sourcing from our Negotiation Game Changer Course.
The only difference between traditional sourcing and electronic sourcing is the method and the length of time needed for the actual sourcing to be successful. For traditional sourcing, it’s going to take days, weeks, or even months before the procurement team can find a reliable source for the materials. But with electronic sourcing, the programs use an algorithm that’s been pre-programmed into the e sourcing program to help the user in finding the right supplier for the job.
Traditional procurement is all about individually checking each supplier, while e sourcing allows the user to take their pick on which supplier has the best products available in a matter of seconds.
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The E Sourcing Process
For this section, we are going to check each of the steps of the e sourcing process.
The process is as follows:
Request for Information
This is the part where your e sourcing program asks for information from the potential sellers/suppliers. Information is exchanged about the products, such as price, quality, number of stocks available, and others.
Once information from the supplier is received, the program then presents all data collated to the procurement/sourcing team for discussion.
This is where the sourcing team picks which of the potential suppliers can handle the actual project/procurement. The ones picked will then be sent an invitation for the upcoming auction bidding.
This is the part of the process where the suppliers gather and try to win the bidding against the other suppliers.
And since we are talking about bidding, there seem to be three types that are consistently being used:
- Reverse Auction – here, bidders compete to offer the lowest, acceptable price against a pre-set starting price. The auction ends when only one bidder is left with the lowest offered price.
- Dutch Auction – The start of this auction has prices so low that it would not be acceptable to any bidders. At set intervals, the price is increased marginally for bidders to accept. This cycle continues until there is only one bidder who has accepted the new price. At this point, the auction is over for the other invited suppliers.
- Japanese Auction – This is a reverse of the Dutch auction, where the buyer’s starting price is so high that all participants accept it. A time frame is set for each bidder to accept the price and once this time has passed, a new price is set, which is usually lower. Again, the bidders are given time to accept the new price. The cycle repeats until there is only one bidder left who has accepted the new lower price at which point the auction is closed.
Once the winner is declared after the bidding, the sourcing team then awards the supplier and discusses further the procurement/project.
Software for e sourcing and e procurement
As mentioned earlier, e sourcing is sourcing done electronically through the use of software, since it obviously saves time and money. As such, we’ve also decided to bring out some of the best software tools available for e-sourcing:
Zycus can help buyers reduce costs by 15-45%. Its custom-built RFX templates save time for buyers, by speeding up the process of creating and sending RFXs to suppliers. Zycus also helps buyers plan for the future with what-if scenarios. This is important for supplier analysis as it is not based on opinions, which can be biased.
GEP Smart, which is cloud-based, easily provides real-time data on spending habits by analyzing all the available information. It also offers various RFx tools, with an interface that is simple to use while providing in-depth functionality.
The features of Ivalua’s project management software are known as one of the best in the industry. Multiple users can input their requirements during the initial phase of RFI, which ensures no details or requirements are forgotten. Ivalua can also be configured to support existing workflows.
Coupa offers both e sourcing and e procurement tools to help you from your initial spend analysis to contract management. The spend analysis feature has built-in report templates, but users can also create custom reports easily with its user-friendly interface.
Frequently Asked Questions
What is smart procurement?
Smart procurement is the online equivalent of the actual procurement process.
What is the difference between smart sourcing and smart procurement?
Smart sourcing is all about trying to locate the right supplier for the supplies needed while smart procurement is all about completing the procurement process.
Why is smart procurement important?
Smart procurement is important because it will make your procurement process faster and more reliable.
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