September 2005 | Commentary | IT Matters

Pulling Back the Curtain on Logistics, Purchasing Practices

No tags available

Logistics, purchasing, and inventory management can be thankless jobs when everything goes according to plan. No one applauds when manufacturing deadlines are met, quality products ship on time, and workers have the right supplies.

But if deliveries arrive damaged, or low inventory halts production, executives pull back the curtain and discover who's to blame.

Bidding, negotiating, and contracting with suppliers present significant challenges in logistics and purchasing. Previously, few alternatives existed to traditional, often cumbersome, paper-based systems. Today, however, buyers and suppliers have access to a powerful tool for enhancing relationships, streamlining the purchasing process, and cutting costs by as much as 32 percent.

That alternative is eSourcing.

eSourcing refers to web-based negotiation tools that allow buyers to automate the bidding process, while suppliers compete during real-time bidding events, such as reverse and forward auctions.

Through eSourcing, companies can:

  • Realize average cost savings of eight percent to 32 percent on capital equipment, raw materials, and services.
  • Compress the purchasing cycle from 75 percent to 80 percent, which results in reduced manufacturing and distribution time.
  • Access a highly qualified pool of vendors from around the world, including those in low-cost regions. International companies can build vendor relationships in the local markets they serve, enhancing their buying power on a global scale.
  • Procure higher-quality goods and services that deliver better end results to customers.
  • Reduce administrative costs and time associated with the RFP/RFQ and bidding processes. eSourcing eliminates hard costs such as printing, postage, and handling, as well as the time required to juggle paperwork.

Connect to Success

Here are five tips to help you lay the groundwork for smooth negotiations through eSourcing.

1. Balance reliability, quality, and price. eSourcing's ultimate goal is to develop a network of vendors who provide reliable, high-quality products, services, or materials at competitive prices. Buyers should gravitate toward eSourcing's multi-attribute scenarios, which evaluate suppliers based on quality, reliability, and value-added services, in addition to price.

A logistics manager, for example, could evaluate trucking companies not only on cost-per-ton shipped, but also on expertise handling hazardous materials.

Buyers who rank their priorities for each factor before they develop specifications, then keep them top-of-mind while evaluating bids, will be more satisfied with the end results. Suppliers will appreciate the chance to showcase their competitive differentiators.

2. Establish clearly defined and relevant purchasing specifications. By developing clear requirements and expectations for the products and services they purchase, buyers ensure a true apples-to-apples comparison.

Buyers can further enhance the bidding process by encouraging suppliers to ask questions and seek clarification. This deepens relationships that net better outcomes and gives suppliers a chance to quickly identify the most promising business opportunities.

3. Pre-screen suppliers to ensure high-caliber options. While eSourcing offers unlimited access to worldwide vendors, the challenge comes in weeding out those who are not qualified or are not the best fit for a given sourcing situation. By identifying high-quality suppliers prior to negotiations, buyers choose the one that offers the best mix of value, price, and pre-determined requirements.

Pre-qualification factors may include:

  • Value-added services
  • Years in business
  • Revenue
  • References and certifications
  • Locations
  • Immediately available inventory

The end result is a manageable, highly qualified pool of vendors.

4. Determine appropriate bidding guidelines in advance. Open negotiations allow suppliers to see what their competitors are actually bidding, whereas closed negotiations show suppliers where they rank in the process. Suppliers can be uncomfortable with open bidding because they do not want to divulge pricing to competitors. Suppliers choose the negotiation type they are most comfortable with to attract a larger group of interested vendors.

5. Use eSourcing strategically. Not every purchasing or logistics situation is appropriate for eSourcing. Products or services commonly sourced online include commodities and general operating supplies, packaging and containers, commercial transportation, courier services, international freight, or liquid and temperature-controlled goods. eSourcing tends to be less appropriate for procuring highly customized or regulated products and services, or for complex buying processes.

A good rule of thumb is to utilize eSourcing for standard, rather than specialized, products or services.

In an era of stiff competition, factors such as quality, reliability, efficiency, and developing strategic relationships between buyers and suppliers are often just as important as achieving cost savings. eSourcing allows logistics, purchasing, and inventory managers to be professional wizards who pull back the curtain to reveal a procurement process beneficial to all parties involved.

Digital Editions

June 2014 Cover

Full Digital Issue

June 2014

(140 pages • 20.21 MB PDF)

2014 Logistics Planner Cover

Digital Edition

2014 Logistics Planner

(162 pages • 23.2 MB PDF)

G75: Inbound Logistics' 75 Green Supply Chain Partners Cover

Digital Edition

G75: Inbound Logistics' 75 Green Supply Chain Partners

(17 pages • 1.57 MB PDF)

Latin American Logistics: The View to the South Cover

Digital Edition

Latin American Logistics: The View to the South

(6 pages • 0.8 MB PDF)

Chemical Logistics: Delivering Solutions for a Complex Industry Cover

Digital Edition

Chemical Logistics: Delivering Solutions for a Complex Industry

(21 pages • 3.9 MB PDF)