How does a marketplace benefit my company? A marketplace doesn’t just serve to drive compliance to existing supplier relationships. It is also an opportunity to benchmark those relationships and potentially discover new suppliers who will strengthen the value chain or increase spend under management. Best in class procurement companies will want both a private and a public marketplace to drive compliance and discovery.
Companies perform strategic sourcing to establish relationships with suppliers that are in the best interest of the company’s strategic goals. The goals can be cost savings, sustainability, process efficiencies, innovation, etc. Not all companies have formal strategic sourcing processes, but they create relationships for their most strategic products and services. With these relationships solidified (contract or handshake), the company has established a private marketplace of suppliers that will enable the company to deliver on its competitive advantage.
How do the procurement solutions help?
In a previous blog, I talked about how compliance and adoption have been enhanced by online shopping – the familiarity of online shopping drives the adoption and the catalog content drives compliance. Thus, companies can model their product and service agreements in a catalog or private marketplace for employees to access during tactical purchasing. Many know catalogs can be used for a basic product-price lookup, but many more terms can be modeled in the catalog such as price scales, price schedules, product configurations, dynamic pricing, rate cards, etc. Whenever an employee needs to make a decision, the catalog can guide the user to the right price in accordance with strategic relationships.
But what about the companies who don’t have a team to perform strategic sourcing?
Most companies do some form of strategic sourcing, focused largely on their most strategic products and services. People are picking up the phone and calling suppliers, negotiating agreements, and relying on solid performance from suppliers. Accordingly, there is a private marketplace, albeit relatively small. Certainly there is an opportunity to increase spend under management. The challenge is a team dedicated to the next tier of spend and the leverage to negotiate worthwhile terms and conditions. For these companies, a Global Purchasing Organization (GPO) model offers an outsourced strategic sourcing team that can negotiate on behalf of a group of companies to combine the buying power of the group. We’ve called this the “Costco model” where companies can join the club to get the better pricing. Again, the procurement catalog can preserve the negotiated pricing and offer a familiar and user-friendly online store for members to purchase at member pricing.
With that, we have ventured into the more public marketplace. In the case of the GPO, we have a marketplace with verified suppliers based on the third party or GPO strategic sourcing activities. But, does it make sense to open the marketplace to anyone, creating a public marketplace? The answer is easy: it doesn’t hurt to look. I’ve talked to so many companies who have agreements with suppliers, but they want to know how good those agreements are. They want to benchmark. The public forum gives companies the opportunity to compare their existing relationships with potentially new opportunities. However, in the open frontier of a public marketplace, it will become increasingly important to qualify suppliers. What may look good at face may not be a good fit when it comes to the details. Thus the marketplace requires the functionality to qualify (eg: engagement tools, bidding) or the third parties to verify (eg: ratings and reviews). Information that can be aggregated from marketplace activities (many buyers, suppliers, and market makers) will help companies identify the right supplier.
Like a top professional sports team, the marketplace affords a solid bench, a good farm system, and a free agent market to ensure current and future performance. The private marketplace is one-of-a-kind. This is the winning team that strategic sourcing assembled to be competitively better than opponents. In some positions where the team is comparatively weak, the company can look to the marketplace to identify any opportunities to improve in that position. The marketplace will help us to identify those weaker positions and discover new players because we can benchmark what we have with what we can get.
To complete the sports team analogy and plug for the solutions I pose a question, what good is the team if it isn’t used? Ever heard the expression, “that team looks great on paper”? The e-procurement solutions, in particular catalog management, will ensure the adoption and compliance so the team isn’t just on paper, but used competitively.