e-Procurement – A Superior Vendor Sourcing Process

By: Eugene Duynstee, President, KPM Enterprises Inc.

How much time and effort do you spend sourcing vendors? Most buyers tend to use incumbent suppliers year after year. It’s a quick, easy, low-risk solution – the relationship is already established, and factors such as quality and performance are known quantities.

So what’s wrong with this “if it aint’ broke, don’t fix it” approach?

You are likely spending, on average, 15 -20% more than you need to, and may not be getting the best available quality and performance. Why?

  1. incumbent vendors are not motivated to offer the most competitive price
  2. other qualified suppliers who may have a superior price/performance solution are not even considered

Even if you do engage in an RFP process, this manual approach is cumbersome, time-consuming, and scoring is highly inefficient. More importantly, it doesn’t allow for a dynamic competitive bidding process. Quite simply, it’s an out-dated system.

What is e-Procurement?

e-Procurement is an innovative, technology-based process that delivers the optimal combination of price, quality and performance for any product or service a company might require ranging from office supplies, consumable items, maintenance and repair operations, all the way to courier and snow removal services.

It’s a suite of electronic tools and products that expand the scope, efficiency, and accuracy of information at each step of the procurement process from e-catalogues to RFI’s, through to the final vendor agreement and ongoing cost control and monitoring.

The process is based on a comprehensive database developed and maintained by the e-procurement service provider. An effective database will contain detailed information on over 300,000 local and global vendors, as well as a library of specifications on products and services.  This provides the buyer with a considerable advantage in terms of classification of supplier product lines and capabilities, quality and performance history, safety record, environmental initiatives, and much more – because as we all know, it’s not always just a matter of price.

In addition, a sophisticated software application program is built into the system that provides extensive functionality with quick and easy access to information and retrieval of data. Vendors can be grouped according to certain criteria, records can be retrieved and classified based on priorities – the combinations are endless!

Reverse Auction – the “event” that pulls it all together

In a nutshell, the Reverse Auction, or Auction Event, is an on-line process whereby a company entertains bids for a product or service from a pre-screened group of qualified suppliers. The auction is conducted with all participating vendors collectively, in real-time, and typically lasts approximately 30 minutes.

During the auction event, buyers can see, on one page, all responses from suppliers, information about each supplier, product specifications, notes from suppliers, and any other pertinent information that may factor into the decision. Vendors cannot see the bids of other suppliers, but if they are not flagged as being the lowest bid, they have the opportunity to better their price at any time during the auction.

Upon conclusion of the auction, the buyer is provided with a summary presentation showing the different price/quality scenarios and other relevant information for review and evaluation. They can then award their business to the selected supplier, all directly from their desktop!

Results You Can Expect

Reduced supply costs – an average savings of 15-20% is typical with this process, and in one case was a whopping 40%!

Increased productivity – the purchasing department’s productivity typically increases by a factor of 3-5 times with respect to sourcing activities.  It’s faster, more efficient, and provides better results than traditional RFP methods.

Buyer needs better aligned – a significantly greater number of qualified suppliers, together with increased scope and accuracy of information, can be evaluated and compared easily, allowing the buyer to choose the best price scenario, at the required level of quality and service.

Why is e-Procurement and the Reverse Auction process  preferred over traditional methods?

  • Instant access to an extensive pool of both local and global suppliers.
  • Comprehensive database providing an expanded scope of detailed quality and performance information at your fingertips that is well-maintained, continually updated, and easy to access/review.
  • Access to the category expertise of the e-procurement team. e.g. insight into industry dynamics, how specific goods/ services are priced, help in  identifying, defining and designing specs in order to maximize the effectiveness of the process.
  • Identifies the best sources of supply based on buyer defined parameters, often uncovering alternative sources not previously considered.
  • Companies can invite far more suppliers to participate in the procurement exercise than they could possibly manage with traditional methods.
  • Facilitates a sophisticated, real-time bidding process that motivates suppliers to offer their best price.

KPM Case Study

Plastic Wrap Auction Saves $1.3 Million

A distribution company with over 60 divisions coast to coast was spending $3.8 million for the purchase of plastic wrap – the product that covers and protects the contents on pallets during shipment to customers. We discovered that the company had limited knowledge of the prices being paid and the quality standards established within each division, so we took a look.

We gathered the myriad of vendor and pricing data and what we discovered was eye-opening! The company was not only using 29 different vendors for the purchase of plastic wrap, with varying prices among each vendor, but more surprisingly, in one case the same vendor was charging different prices for the same product (exclusive of transportation costs). Just obtaining consistent pricing across the country from one of the existing vendors would have generated a savings of 10% alone.

Clearly this product was ripe for the reverse auction process. Being a relatively new concept to the company, there were many that were sceptical of the process. However the go-ahead was given and we proceeded to develop specs tailored to their needs.

Based on the defined parameters, 8 qualified vendors accepted the terms and were invited to participate in the reverse auction. The live auction was completed in 23 minutes and resulted in a further 17% cost reduction, generating an overall expense savings of 32%!  In addition, the business was awarded to one of the existing suppliers with the added benefit of a known quality and performance history.

The company was extremely pleased with the results. They have embraced the concept and have completed over 100 additional reverse auctions to date.

The Bottom Line

e-Procurement is a superior vendor selection process that delivers substantial reductions in supply costs, maximum supplier performance, and improved cost controls, that translate to a significant boost to the bottom line.

Innovative and user-friendly, this technology-based process is gaining acceptance worldwide as the preferred procurement system.

For more information on e-procurement and other cost reduction techniques, please contact Eugene at eugene@kpmenterprises.ca or 905-891-6994.


Eugene Duynstee is President of KPM Enterprises Inc., a company focused on implementing responsible cost reduction programs in large organizations. KPM Enterprises Inc. is headquartered in Mississauga, Ontario, Canada. Further information can be obtained from our website at www.kpmenterprises.ca

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