In today's hyper-digital world, companies are shifting to e-sourcing with e-sourcing tools designed for digital transformation in tactical and strategic sourcing. E-sourcing software provides efficiency and other benefits, including better supplier selection, collaboration, and visibility into this element of electronic contracting and business spending.
What is electronic sourcing?
E-sourcing is the use of specialized and automated web-based electronic software tools to digitally achieve a company's strategic sourcing objectives. E-sourcing activities include determining and communicating purchasing requirements, bidding, negotiations, supplier selection, and contract management for procurement activities.
Sourcing is a subset of acquisition process activities related to supplier selection, while procurement consists of the entire on-demand purchase requisition process and post-purchase supplier evaluation by the Procurement department in cooperation with other stakeholders. E-sourcing uses eSourcing software tools to perform workflow tasks and collaborate with the internal team and potential suppliers.
How does electronic procurement work?
e Sourcing works by using digital documents distributed online and comparing supplier capabilities, business risks and electronic bids to create and award contracts electronically through e Sourcing software.
The five stages of the e-sourcing workflow are:
- Information request
- invitation to tender
- Evaluate tender
- electronic auction
- Award contract
Request for information (RFI) is used by a company that purchases goods or services to collect non-pricing information from potential suppliers. In procurement, a tender is an invitation for potential suppliers to participate in the sourcing process and compete for the award of a contract for a project or major purchase request. Some smaller purchases only have purchase orderswhich become contracts after being accepted by both parties.
Benefits of electronic sourcing
The benefits of electronic supply (e sourcing) are:
- Greater efficiency and effectiveness through integrated best practices, streamlined workflows, and paperless automation.
- Better electronic document distribution and collection, communication, collaboration, status notifications and visibility in a unified online system with a supplier portal
- Cost reductions and increased likelihood of performance by reaching more eligible supplier candidates and comparing electronic bids or quotes and supplier risk profiles
- Comprehensive and impartial supplier scoring, supplier risk management and evaluation process
- Digital contracts and electronic purchase order data are available in a centralized document repository and can be attached to transactions.
- Global supplier management
- Control and analysis of expense management.
- Ensure global suppliers comply with regulations
Electronic sourcing and procurement systems provide accurate and efficient information. ai data entry when possible and standardized templates for customization. They allow your company to track suppliers and ensure best practices in global supplier management.
Note that while eSourcing systems may focus solely on the sourcing workflow in procurement, many eSourcing tools cover other aspects of the procurement process, including post-purchase supplier evaluation. A post-purchase supplier evaluation system can continually monitor supplier performance and notify suppliers of required improvements or pending contract terminations. You will also notify the company of these proposed actions and the need to begin searching electronically for an alternative supplier.
eSourcing tools often include an online supplier portal for centralized contract and sourcing documents, supplier communication, status notifications, and collaboration between the company and its current or future new suppliers. Many ai-in-procurement”>eSourcing solutions use ai algorithms to seek and evaluate regulatory compliance by suppliers.
Electronic sourcing tools fall into the category of source to pay (S2P), but outside of procure-to-pay (P2P) systems that begin after the sourcing process is complete.
The types of e Sourcing tools included in online sourcing software for procurement are:
- eRFX
- Electronic auctions
- Direct sourcing versus indirect sourcing
- Contract generation and signing tools.
eRFX
The broad category of eRFX refers to electronic questionnaires with product or service specifications that solicit information, capabilities, and pricing from competing suppliers. eRFX are requests prepared by companies in the sourcing process to be completed and submitted by competing suppliers.
The purpose of eRFX is to collect information, quotes or proposals from potential suppliers. RF means request for. The X is replaced by the initial letter of the application type to title a personalized but standardized form for the award of a contract that requires responses from potential suppliers.
For example:
- RFI is a request for information
- RFQ is a request for quote
- RFP is a request for proposal
eSourcing software tools include templates for the procurement department to digitally prepare custom RFIs, RFQs, and RFPs, the ability to distribute these eRFX forms, and the ability for suppliers to submit their completed RFIs, RFQs, and RFPs through the system, allowing visibility for all stakeholders. Some eSourcing tools include automated supplier scoring and evaluation. See the Nanonet blog article to learn differences between RFQ and RFP.
Electronic auctions
Some companies use their eSourcing solution to invite potential suppliers who have passed the initial qualification assessment to submit bids for the award of the contract for which a supplier is selected.
Competitive bidding can be used to find the low-cost bidder, but most informed procurement departments will also consider quality, financial strength, delivery performance, and sometimes sustainability objectives when choosing a supplier.
Direct sourcing versus indirect sourcing
Direct sourcing versus indirect sourcing is the difference between selecting suppliers and purchasing items for use in production for eventual sale of goods to customers (direct sourcing) versus selecting suppliers for other goods and services purchased for general use in the business. (indirect supply). ).
eSourcing tools are used for both direct sourcing and indirect sourcing.
Direct sourcing is for purchasing raw material inventory parts and manufacturing supplies. Direct sourcing includes issuing contracts and blanket purchase orders with multiple delivery dates that count toward volume discounts.
Direct supply items have a higher profitability in the acquisition. Great pricing, volume discounts, and cash discounts can create much higher gross sales margins from lower cost of goods sold and better bottom line profitability. With eSourcing tools that improve the sourcing process and implement your company's objectives. procurement strategyYour business will also achieve desirable cost savings, requiring lower cash outflows and financing needs.
Indirect sourcing may include tail spend/hipster spend items that are low cost and purchased in low volumes. eSourcing software can include online software systems with hundreds of pre-approved suppliers and controlled employee limits. Maverick expense items, such as office supplies, often do not require purchase orders because the cost/benefit of preparing a purchase order cannot be justified. purchase request and purchase order through the procurement department. However, companies can create electronic contracts in advance with their preferred suppliers through the system.
Contract generation and signing tools.
E-sourcing tools can be used to review and generate signed contracts between a company and its suppliers. These tools can be built into the system or integrated as third-party software. The electronic contract is stored digitally and accessed by interested parties.
Conclusion
For transformative e-Sourcing, your company needs the eSourcing solution that best suits your sourcing needs and budget. Optimal e-sourcing software will help your team select high-quality, competitive suppliers and build supplier relationships through better collaboration and communication.
Once your company has secured its acquisitions, consider using Nanonets Purchase order OCR API for accurate purchase order data extraction powered by ai and ML AP Automationproviding a seamless cycle from acquisition to payment.
