eSourcing, sometimes referred to as electronic sourcing, describes the use of web-based systems to collect and compare information about several suppliers in order to help the buyer select a preferred provider.
The technology offers several benefits; it is designed to assist organizations generate savings from their supply chains, increase visibility of key business information, and reduce the amount of time it takes for procurement professionals to do their day-to-day tasks.
How does eSourcing work?
Electronic sourcing is a small but important part of the overall eProcurement process. It includes inviting potential suppliers to an RFxtender, collecting supplier information, running Sourcing eventstender processes and/or holding eAuctions, analyzing and evaluating responses, and finally, awarding them with a contract.
We’ve detailed the entire process below:
Pre-purchase questionnaire –before doing business with any supplier, it is imperative to identify if they’re appropriate to do business with. Organizations achieve this with pre-purchase questionnaires (PQQ), which are detailed documents designed to assess the suitability of a supplier. PQQ’s are common in the public sector, but in other industries, the process can be called request for information (RFI).
In the past, procurement teams would have to manually fill out these documents by hand or in software such as Microsoft Word or Excel. With electronic sourcing, the process is streamlined, as suppliers can upload their answers into the eSourcing software, which is distributed directly to the business. It allows organizations to collect information from more suppliers in a fraction of the time and ensures consistency of completion
Invitation to tender – invitation to tender (ITT), also known as a call for tenders, is a process for generating competing offers from different suppliers. Once they have filled out a PQQ and have been selected to go to the next stage of the sourcing process, suppliers are sent an ITT.
The ITT document specifies all the requirements of the organization, including what goods or services are required, as well as outlining a range of information the buyer will require the supplier organization to submit about its own policies, practices, and processes, and how the evaluation process will be managed. Suppliers fill this document out to be taken to the next stage of the procurement process.
Request for quotation – in this process, price is the primary factor for choosing a supplier. Buyers send out forms for suppliers, asking all of them to provide prices for the services they can render.
Request for quotations (RFQs) can be used prior to an RFI and ITT if a buyer is seeking to understand price ranges in the market.
It is worth noting that all three of the steps above are interchangeable. Evaluation – once the requested evaluation formats have been sent and received, an evaluation process takes place, during which the prospective buyer evaluates whether the information a supplier has provided them renders them a viable candidate or not.
In the past, this process involved manually sorting through swathes of paperwork, supplied by the suppliers invited to tender. But electronic sourcing changes this – and also provides a sophisticated suite of analytics, dashboards, and tools like automated scoring – allowing users to automate elements of the evaluation process, therefore saving precious time.
eAuction – much like RFIs, PQQs, and RFQs, eAuctions can be run at any point in the eSourcing process. It can follow a tender, be used after a tender process, or run as a standalone event for finished goods.
Once suppliers have been selected, they are invited to participate in an eAuction – a process whereby suppliers bid on the right to deliver the contract for which they’ve been invited to tender.
Many eSourcing tools offer different eAuction types, each with unique benefits. Auctions are designed to encourage prospective suppliers to compete with one another and, as such, deliver the best possible deal for procurement professionals.
Contract award – once the tendering processes and/or eAuctions have concluded, and a buyer has been selected, a contract is awarded to the winning supplier. Elements of this process can be automated, automatically sending the winning bidder a contract.
Benefits of electronic sourcing
eSourcing provides businesses with a wealth of benefits. We’ve listed some of the most common below:
- Reduces costs: by accessing a broader range of suppliers and leveraging different eAuction strategies, eSourcing presents significant cost savings for procurement teams.
- Saves time and boosts efficiency: electronic sourcing also speeds up the time it takes to award a contract. It does this by reducing the amount of time procurement specialists spend on the tendering process, and therefore, freeing up time to spend on other tasks.
- Leverage detailed supplier information: eSourcing improves transparency between buyers and suppliers. By using a portal, teams can view all tender opportunities from a supplier, including deadlines, status, and other key information.
- Bolster compliance: since all procurement-related documents are stored in one place, auditing is made simpler – as is compliance with regulatory procedures, with a system transparently displaying how and why a supplier was selected.