2017 Sourcing Automation Report

Introduction

Reducing costs in the back office is a top priority for many businesses, and some turn to automation software to streamline processes such as invoice management or electronic procurement (eProcurement). However, many CPOs and other decision makers hesitate to automate more strategic operations like sourcing for fear that the new system will negatively impact the current state of their sourcing department.

A successful sourcing process enables an organization to obtain goods and services at the best possible prices. Efficient sourcing depends upon strategy— more so than small-value, indirect procurement processes that are primarily tactical in nature. The sourcing process is also much more delicate and complex than general procurement, especially when a sourcing team is trying to obtain large orders or contracts related to projects. Sourcing engagements entail turning a transaction with a supplier into a long-lasting business relationship. Procuring goods and services from a sourcing engagement is much more cost-effective in the long run than simply ordering goods and services as they are needed. Sourcing-based procurement also has numerous benefits for a company’s supply chain, such as more control over supplier pricing.

One way to improve the success of sourcing processes and reduce the costs and inefficiency related to manual procedures is to implement an advanced electronic sourcing (eSourcing) software. These solutions enable organizations to procure goods at competitive prices from premium suppliers by facilitating open sourcing events, often involving supplier scoring and reverse auctions. They offer functionality for automating and simplifying several key sourcing activities, including RFx creation and sourcing-based contract creation, and help to replace existing, unfavorable procurement engagements with more cost-effective, strategic contracts. However, despite these benefits, companies are hesitant to disrupt the sensitive senature of the sourcing process with a technology implementation.

Levvel Research believes the long-term value of sourcing automation far outweighs the potential risks that come with implementation, especially when an organization is working with an experienced software provider that understands the sourcing process and the needs of sourcing teams. This report highlights current sourcing trends among organizations, and it explores how decision makers can overcome adoption hesitations and use eSourcing to their organization’s best advantage.

Sourcing Today

In order to identify sourcing trends among North American organizations, Levvel Research surveyed over 300 back-office employees across various industries and market segments. One of the main goals of this survey was to determine the differences in sourcing efficiency when organizations were operating under manual and automated processes.

In a traditional sourcing process, sourcing teams select suppliers for engagements based on multi-touch, multi-stage RFx evaluation or auction scenarios. Manual operations can often take months to assess purchasing needs, build sourcing plans, conduct market research, and identify and evaluate suppliers. Research indicates that over half of respondents are operating with entirely manual, traditional sourcing processes, see Figure 1.

Manually-operated sourcing departments often suffer from limited process transparency, faulty supplier lists, and inconsistent data management. These problems persist throughout the sourcing process and the supplier relationship. For example, once sourcing engagements are converted into supplier contracts, these contracts are typically housed across many different locations, computers, or even filing cabinets. As long as a supplier engagement is active, it is up to the sourcing team or manager of the account to keep track of contract variables, such as expiration and renewal dates or project milestones and deliverables, as well as to ensure that contract pricing remains competitive each year. Without an electronic system to manage this data, organizations may be operating on overpriced, non-competitive contracts for many years. Among the 60 percent of respondents operating under manual processes, the top reported pain points include poor visibility, decentralization issues, and non-competitive pricing, see Figure 2.

The issues in Figure 2 are typically some of the deciding factors that push an organization to adopt a sourcing platform. Figure 3 shows that among the 40 percent of companies that have adopted automation, most were led by a desire to reduce costs, improve supplier performance and consistency, and consolidate sourcing and procurement.

With eSourcing, sourcing teams can manage all strategic purchasing within one secure platform. These departments are able to lower costs, improve control, and decrease supply chain risks. Figure 4 shows that the 40 percent of organizations with eSourcing were able to achieve their goals and lower their top pain points with the systems they adopted, see Figure 4.

Despite the savings eSourcing can bring, not all organizations choose to automate. A variety of factors determine whether or not an organization adopts a sourcing solution, but they are not all based on obvious elements like supplier count or industry. For example, although larger organizations generally tend to be more likely to adopt a sourcing solution, this is not true across all market segments, see Figure 5. Companies in the upper middle market (UMM) segment have a lower sourcing technology adoption rate than those in the lower middle market (LMM).

Levvel Research believes that eSourcing adoption has less to do with the general conditions of an organization, such as supplier count, and more about the unique environment within each organization, including their perception of the usefulness of sourcing technology. Unfortunately, because the barriers to adoption are more linked to unique perceptions within a company, they can be harder to combat. The following section takes a closer look at misconceptions about sourcing automation, barriers to adoption, and ways to overcome them.

Why Use eSourcing?

Research shows that organizations’ top barriers to adopting an eSourcing solution revolve around the perception that their current state is satisfactory, see Figure 6.

Levvel Research has found that the reasons “current processes work” and “no executive sponsorship” are closely related, as they are both based on a belief that conditions do not warrant disruption, either by implementing a technology or changing how things are run. Even in cases where companies are experiencing many of the challenges that come with manual sourcing, it is difficult to build enthusiasm for changing things by using a lengthy and expensive software implementation. The following sections provide a more granular look at the issues that cause an organization to resist eSourcing adoption, and provide possible answers to these issues.

Resistance to Technology Investment

Problem: Low executive sponsorship and budget concerns are typically related to an organization’s perception of a technology’s Return on Investment (ROI). The ROI from upstream processes like sourcing is harder to define, predict, or guarantee. Savings from these processes typically do not come from cost reduction or rebates as with other standalone back-office solutions, like payables automation. Instead, ROI from sourcing automation typically comes from improved pricing with suppliers and reduction of maverick spend. However, in some cases, organizations may already have the most competitive deal with a supplier, or may not be able to properly track overspending—meaning they would not be able to measure its decrease after automation. The pains and inefficiencies that sourcing and sourcing automation platforms improve upon are hard to track and measure before automation, making it more difficult to gain buy-in from C-suite decision makers.

Solution: The difficulty of measuring the costs of a current, manual sourcing operation can be one of the greatest drivers to adopting an eSourcing solution; eSourcing solutions provide the transparency into current processes that manual methods lack. eSourcing tools offer valuable insight into spend data, allowing companies to track and measure their processes once they are automated and identify inefficient pricing in supplier contracts. eSourcing also helps companies merge many disparate purchasing processes into one streamlined operation with a secure, real- time electronic environment, which reduces the sourcing lifecycle duration and related processing costs. This means organizations can clean and consolidate their supplier list, re-negotiate and re-source large contracts to gain more effective prices and terms, and began relationships with several new, premium suppliers. An eSourcing solution gives companies tools that improve interaction with their current suppliers, and grants them access to other suppliers through the solution’s supplier network. They can gain more competitive bids, and increase access to suppliers more suited to their financial and logistical needs.

Levvel’s research indicates that an organization’s total indirect spend typically decreases by as much as 15 percent within the first three years of using a sourcing platform. In the long run, organizations gain visibility into where their spend goes, which enables them to reprioritize and restructure their spend management in several different ways.

The Siloed, Strategic Nature of Sourcing

Problem: Sourcing departments are often run independently of other financial departments, even those departments that are closely tied to the Source-to-Settle (S2S) lifecycle, such as Procurement and AP. Many larger organizations also have different sourcing teams for different locations due to the widespread operations in enterprise companies, which makes it very difficult to manage these departments under one structure and management team. The idea of managing all the moving parts of these back-office departments on a single technology platform is perceived as less feasible for these companies.

In addition to the physical separation, many organizations believe sourcing’s strategic nature sets it apart from other back-office departments. Sourcing is perceived as more relationship-based, and is therefore more subject to careful oversight from management to ensure these relationships remain secure. Organizations with this internal mindset are more resistant to change for fear of disrupting relationships and supply chain operations, and hurting company revenue.

In reality, a siloed back office causes major problems for data management and supply chain efficiency. For example, an organization with a decentralized back office has inefficient, disorganized methods for sourcing goods and services, often emailing suppliers from master lists and requesting RFx participation, or posting sourcing events on its website. Manual sourcing often involves operating sourcing events through email or the company website, which is time-consuming and leaves gaps in the security of company information. Siloed methods also afford little real-time visibility into projects’ statuses across different teams, as there is a lack of process and data synchronization across different departments and locations.

Solution: eSourcing provides centralization with flexibility and control. Sourcing solution providers understand the delicate, complex, and strategic nature of sourcing processes, and are adept at automating these processes without putting a company’s supply chain and supplier relationships at risk. A sourcing solution also allows an organization to bring all spend processes onto one platform without sacrificing the unique requirements of different company locations and departments. The sourcing department can customize sourcing engagements to its needs, building RFx parameters and scoring models that meet requirements while still working within company policies, budgets, and security controls, and while accessing the same supplier lists and company database.

With an eSourcing solution, an organization gains a secure, flexible online environment that integrates with existing systems. The solution also automates the majority of the supplier outreach and RFx creation processes, and covers IT maintenance and solution security. All of these factors help to create a streamlined implementation that does not harmfully disrupt the status quo or put a company’s revenue at risk.

Sourcing Solutions Do Not Solve Existing Problems

Problem: Levvel Research has found that companies often do not automate because they do not think they have the need for the features offered by a solution. Sometimes this means they do not have enough sourcing engagements, or that they simply have not connected the solution’s features with their top pain points.

Solution: Table 1 shows organizations’ top reasons for why they implemented eSourcing, aligned with the eSourcing features that benefited them most.

The table shows that the main features of eSourcing actually do meet common process improvement and sourcing goals. Even if a company has a relatively low number of sourcing events, eSourcing helps to fix many other problems around supply chain management, such as improving the ability to meet foreign local requirements. Levvel Research believes that the main reason organizations believe eSourcing won’t benefit them is because they do not have a proper understanding of what the technology offers. The following section offers a high-level guide to the features and services available in leading eSourcing software.

Electronic Sourcing Features and Functionality

The basic workflow of an electronic sourcing lifecycle begins with a sourcing or procurement professional identifying a need, and recognizing that this need would be best met through a sourcing event. Because sourcing is an advanced procurement function, sourcing event requests can arise from an approved requisition or a re-evaluated contract. After a sourcing request is approved, the event creation begins.

The following tools are essential functionalities in leading sourcing solutions.

Event Creation

A user begins the sourcing process by creating an RFx and setting up an event. These events can be created from scratch, from a template library, or by incorporating elements from previous events or templates. Depending on the configuration of the system and the organization’s other automation tools, users could potentially also flip requisitions, contracts, and other business documents into an RFx.

As users create their event, multi-stage RFx templates offer functionality for RFI, RFP, and RFQ. Users can set up custom participation guidelines for suppliers, and assign them tasks or request documents. The RFx can include weighted questionnaires designed to score individual suppliers’ responses. This allows organizations to evaluate suppliers on more than just cost; they can collect data and score suppliers in many areas of business eligibility, including experience, tax and regulatory compliance, and quality of goods and services. Buyers can also attach internal documents, such as non-disclosure agreements. In all, the flexibility of template and questionnaire creation tools allows organizations to tailor RFx events to many different spend categories, markets, global regions, and types of suppliers.

As users create an RFx, they can use a collaboration workflow to send the template to colleagues for authoring, editing, and approval. For example, one user may complete the first stage of the template by defining the goods or services needed, while another may configure the scoring controls. The template could also be routed to the legal department for a risk evaluation, ensuring that all details are legally compliant.

Once the RFx is ready, users can search the sourcing system’s supplier lists for candidates or choose from the solution’s recommendations. The solution automatically notifies suppliers about the event with a custom email invitation. Often, eSourcing providers offer access to a network of eligible, local, and global suppliers. This allows the user to source goods from a more diverse supplier pool, and to potentially build new, long-term business relationships.

Open Event

Once the sourcing event has begun, users can check its progress at any time, with full visibility into vendor responses, tasks completed, and vendor timeliness. Solutions offer automatic scoring of responses based on questionnaires’ pre- determined scoring weights, attachments, and completed or missing documents. Event platforms allow for a comparison view of supplier responses to enable organizations to make an informed choice. Once the user has selected a vendor, the suppliers are automatically notified of the next steps. Awarded events can often be converted into single or multiple contracts.

Live Auctions

Sometimes, a sourcing opportunity produces better results through a live auction environment. Users can turn an RFx into a reverse auction to increase supplier competition and receive lower prices, or to adhere to time constraints. These auctions are conducted in highly visible, interactive bidding environments that show bidding activity in real time. Auctions can be designed to run through several different bidding stages, and can also be extended if the buyer desires. Once the auction has finished, the same award processes apply as above.

Vendor Management

A sourcing solution often manages supplier master data through the use of supplier portals and self-service tools. When suppliers choose to participate in an event or wish to register with the directory, they must submit certain information and documentation, such as company history, insurance certificates, and/or tax documents. Supplier data is archived in a database, allowing for advanced searches based on supplier size, location, industry, or revenue. The solution also enables supplier categorization, which is based on general information, addresses, classifications, geographical scope, business type, references and user scores, miscellaneous buyer preferences, and other factors. When a buyer needs additional information from a supplier, they can easily use the contact database to send special requests.

Supplier Portal

eSourcing solutions’ vendor management is made possible by self-service supplier portals. Organizations can onboard suppliers to their sourcing platform through custom email campaigns, or suppliers can register independently through the sourcing portal or the buying company’s website. While the components of a supplier portal vary depending on the solution provider, most systems offer a holistic array of self-service controls around catalog management, profile management, and RFx event and auction participation. Suppliers can log in to their portals to view, accept, and reject contracts and RFx. They can upload documents such as insurance certificates, safety protocols, credit documentation, and environmental certificates. Suppliers can also access a negotiation template that tracks all changes to contracts. After an awarded event is flipped into a contract, some solutions even allow suppliers to manage contracts within the same system.

Post-Event Optimization Tools

Some sourcing solutions include several tools and services for strategically enhancing existing purchasing processes and contracts, sourcing strategies, and supplier relationships. Supplier performance management tools enable organizations to look into suppliers’ past activities and make more informed decisions based on supplier value. This data can be leveraged to end non-strategic or high-risk supplier relationships. Some supplier performance management tools allow organizations to assemble supplier ratings based on internal notes and reviews from sourcing and procurement users. These review templates can be pre-built or customized based on categories such as commercial risk, safety, quality, environmental, and performance history. In addition, some solutions include benchmarking capabilities that show negotiation rates and performance history based on internal data from other suppliers. The system can take the performance data and reorganize supplier lists by value and category. This data is available for import and export, and is also integrated into the supplier directory.

Another optimization tool is a strategic analytics engine found in some leading sourcing solutions. The engine re-evaluates an organization’s sourcing activities by examining various fields—including market research, RFx processes, negotiations, contracting, and transaction activities—and identifying savings opportunities. With this tool, organizations can restructure or renegotiate supplier contracts, and can change future company sourcing practices to produce more competitive, higher-quality results. Leading sourcing solutions may also offer data and risk management through reporting and analytics tools. These tools can include commodity risk management and supplier risk analysis based on credit scores, user reviews, logistics, and delivery history. The resulting data can be compiled in interactive drag-and-drop reporting platforms, offering customizable or standard reporting.

GEP

GEP is a procurement technology developer with over 15 years of experience in deploying Source-to-Settle solutions. With its Source-to-Settle platform, SMART by GEP®, GEP has made it possible for all tasks in the S2S process to be carried out in one system and from any device. The SMART by GEP platform includes solutions for spend management, procurement, sourcing, contract management, order management, supplier self-service, and invoice processing. Each component of the platform can easily integrate with clients’ existing systems, or can be deployed as a standalone product.

Solution Overview

SMART by GEP is a secure, cloud-based procurement platform hosted on the Microsoft Azure Cloud. All of GEP’s development, data handling, and operational facilities and systems are certified to SSAE16 standards. GEP also uses a web- based methodology to integrate with its customers’ third-party systems. The solution is mobile-enabled and works on any browser and platform.

SMART by GEP is designed to facilitate the entire process of spend management and procurement, and GEP’s sourcing solution is natively integrated in the SMART by GEP procurement platform. SMART by GEP Sourcing can also be deployed as a standalone sourcing solution, and the outputs from each sourcing event can be transferred into other systems, either via integration or through export of data files.

Sourcing Automation

SMART by GEP Sourcing supports many different complex sourcing functions, from Requests for Information (RFI) to reverse auctions. The solution features an Opportunity Finder tool that helps the buyer identify savings and targets for strategic sourcing waves, and to create new events out of those opportunities. Savings opportunities can also be identified in spend analysis and launched as savings projects, which can then be can be populated with sourcing events. In addition, GEP’s supplier segmentation capability permits multi-dimensional segmentation and the application of performance improvement strategies.

SMART by GEP Sourcing employs an intuitive, easy-to-use process to create complex and comprehensive sourcing events. Users can create events from templates, copies of earlier events, Excel file uploads, or from scratch. Within each event, various components such as text-based guidelines, questionnaires, and price sheets can be stored in and retrieved from a repository. Teams of individuals can work collaboratively on sourcing events, which could involve many possible combinations of event authors, evaluators, and approvers.

Once an event is published to suppliers, the buyer has complete control over it. In RFx events, the buyer can monitor acceptance, rate of completion, and submission of each supplier’s responses. Responses can be scored, evaluated, and sent back for revision. Scoring is composed of a combination of automated and manual methods using multiple evaluators. Event owners can adjust the scoring weights between different questionnaires and evaluators, using hypothetical scenarios to determine the best supplier or combination of suppliers.

During a live auction, the buyer can monitor all bid activity in real time, with the ability to reject individual bids and set auction extensions, safety nets, and visibility rules. All sourcing events feature a communications center that enables broadcast or one-to-one communication between buyers and suppliers. All assigned evaluators review bids, and once the final award decision is made, automatic award and non-award messages can be initiated. Awarded events can be flipped directly into contract negotiations.

SMART by GEP is a supplier portal as well as a buyer portal. Suppliers can receive and participate in sourcing events, review and sign contracts, and manage and maintain their system profile. They can also complete forms and performance scorecards, receive and handle purchase orders, and create shipping notices and invoices.

Reporting and Analytics

SMART by GEP is built upon a data warehouse model for reporting and dashboards, providing the end user with access to all data across the procurement landscape. Its reporting services include dashboards and drag-and- drop, ad-hoc reporting functionality that allows users to create reports based on 2017 Sourcing Automation Reportany parameter captured within the system.

Users can create custom reports, which can then be added to the dashboard, viewed in a graphical format, exported in multiple file formats, and scheduled at a desired frequency. The SMART by GEP platform supports customization of dashboard views per individual users’ requirements.

Implementation and Pricing

Implementation of SMART by GEP solutions includes configuration to the client’s business processes and robust customer support to drive end-user adoption. Post-implementation, GEP provides phone- and web-based support. GEP’s global customer support staff is based out of three regions (US, Europe, and APAC) and is available 24/5.

SMART by GEP is an annual subscription-based service priced on a function-by- function basis, largely according to the number of users of each function for each year of the contract. The different factors considered for pricing include number and type of users, interface languages, contract and template configuration requirement, and support services.

About Levvel Research

Levvel Research, formerly PayStream Advisors, is a research and advisory firm that operates within the IT consulting company, Levvel. Levvel Research is focused on many areas of innovative technology, including business process automation, DevOps, emerging payment technologies, full-stack software development, mobile application development, cloud infrastructure, and content publishing automation. Levvel Research’s team of experts provide targeted research content to address the changing technology and business process needs of competitive organizations across a range of verticals. In short, Levvel Research is dedicated to maximizing returns and minimizing risks associated with technology investment. Levvel Research’s reports, white papers, webinars, and tools are available free of charge at www.levvel.io

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