E-sourcing has a big impact on purchase price and quality, and because of that, a company's ability to compete and its position on the supply chain are effected.

E-procurement means obtaining products and related sourcing services. Most companies are pretty familiar with the eprocurement process, although lots of them think esourcing and eprocurement are the same. In fact, esourcing is just one of the components, part of a total sourcing trategy.  E-procurement includes several steps such as direct and indirect material esourcing, and also involves upper management and the whole company. The main reasons for eprocurement are:

The differences between esourcing and eprocurement involve the application of information technology. Even though eprocurement is a comprehensive word, the traditional purchasing management software only focuses on the concrete eprocurement process (Figure 1). For example, ERP eprocurement module is used for direct material ordering and execution; its function lowers the prime cost of ordering and provides some capability information about the supplier. However, it doesn't have the functionality for user assessment and supplier management, whereas new e-procurement applications mainly offer indirect purchasing service.  E-Procurement application has been trying to resolve problems such as product requirements from different departments, manual ordering process confirmation, unauthorized eprocurement behavior, etc. and are already being used by many companies.

The objective of the E-Sourcing is to have a large, influential, strategic effect on the esourcing process, and at the same time raise the response speedof the supply chain. The application provides a unique strength to analyze material cost and supplier risk, optimize product raw materials and parts, send out RFP (Request For Proposal), provide proposals, and manage contract.

1.What E-sourcing offers

According to the research of the Aberdeen Group, e-sourcing application can help U.S. entrepreneurs save 690 billion USD on costs. For example, if a company makes 3 billion annually, the raw material and sourcingcost will be 50% of its income which means the net profit is 400 million. If an e-sourcing application is applied, a conservative estimation of 5% raw material and e-sourcing cost reduction will make the company’s profit increase 50 million (if under same conditions and tax rate is 33%). If our hypothesis 20 timesof (P/E) ratio, that means every US$1 raw material and e-sourcing cost brings 66 cents of growth in share-holder value. That means the total share holder value would be US$1 million. In such a big business environment, the main purposes of e-sourcing application are:

E-Sourcing application is software that creates a structured esourcing process. The software captures the best operation flow and can be implemented for different categories.

Users who are from different departments, business units or locations can still visit or operate web auction application when needed. The application is usable for eprocurement staff to send auction applications to suppliers and also manage received responses from them. Auction application can be broadcasted to bidders so that they can fill out supply information, and at the same time, a team is ready to assist for the esourcing process.

An Automatic esourcing application can speed up work processes, reduce mistakes, prevent heavy work-loads, avoid redundant information entries and in the end increase the efficiencyof the whole process. E-sourcing tool can let eprocurement staff to integrate their eprocurement requirements from different departments and broadcast their auction through one single esourcing application. By doing so, management is easier and the supplier proposal can be tracked and evaluated correctly. E-sourcing management system is effective and it has the ability to work on different products and in the end creates one esourcing solution.

The quality of a esourcing decision quality usually depends on the accuracy of esourcing information obtained and how that information is analyzed. Since E-Sourcing solution has upgraded the work process and made cross-department management become more functional, information accuracy is highly improved. E-sourcing is a customized tool which provides the best solution to support TCO (total cost of ownership).

Many e-sourcing applications can be applied to off-line simulation engine to company's own use of history data provides a highly relevant training environment.

Previously, esourcing was always done by paper-work and it could be very time-consuming. Usually it took approximately 3-4 months to source one product or even longer. Now, the e-sourcing process can save 25% of esourcing time and 10%～15% of the total time it takes to place a product in the market, and it also improves procured product quality. Due to the e-sourcing solution, a great supply foundation is built to help the buyer to become more innovative and respond quickly to the market.

2.E-Sourcing process and the best practices

It doesn't happen often when souring is the first strategic step of the whole eprocurement process. The product is always the primary step of esourcing; chart 2 is the best frame set of sourcing and e-sourcing.

2.1 Strategy Assurance

Supplier Capability Evaluation

E-procurement assessment is based on souring strategies and requirements. An entrepreneur’s priority is considering whether to cut down their product costs or to increase the flexibility. Generally, a company will have to define the category of product, separate the requirements into sections and then create an esourcing team to organize those inquiries from different business units. E-sourcing tool can be obtained from manufacturer’s IT management system and its function is to analyze the product category and collect information. Some e-sourcing solutions include work process control and also explain and, manage the whole esourcing process.

Internal and External Environment Description

The sourcing team has to know the category of each product and the manufacture or development department should have a clear objective of the mission. E-procurement team would aggregate all the spending records in order to provide a detailed description about each product’s purchasing processes and a market environment chart would be built based on related supplier information. The e-sourcing knowledge tool can be utilized for collecting supplier information and making esourcing decisions.

Strategy Defining

The goal of strategic sourcing is to minimize TCO (total cost of ownership), not only to cut down product costs but also the processes. Hence every product needs to have their own TCO module which should include prices, quality, services and expected life-span of product. Through analysis, TCO will display industrial environment and the quality of product. Sourcing team will conduct different contracts based on product category and requirements. Some e-sourcing tools support TCO model to analyze the value of it.

2.2 Prequalify Suppliers

First, the esourcing team builds a supplier database that contains every product sourcing strategy and operating process. Procurement staff sends RFIs (Requests For Information）to supplier and manages the information gathered from them and at the same time, rounds up information from outside sources such as Dun & Bradstreet，Open Rating, etc. The esourcing team will provide a potential supplier list while checking a specific company. The e-sourcing tool can explain collected information and help to rate the potential suppliers.

2.3 Contract Negotiation

Conduct Auctions and RFP (Request For Proposal), procurers have a few sourcing choices based on product specifications and the industrial its involved. For example, the high commodities of goods is through B2B e-commerce market, with the inherent between the buyer to keep in touch and exchange. On the other hand, bulk commodities can be done by reverse auctions. However, more complicated product like contraction materials would need negotiation or reverse auction. Other products like office stationary could be inquired through category order. In this case, the esourcing process will be processed with other resellers and discount is given upon the amount. E-sourcing tool can generate RFQs, disseminate inquiries and respond automatically. Auction application provides an ability to conduct auctions over the internet in real time and let procurers monitor the web auction anytime they want.

Value Proposition

Eprocurement staff choose a winner from suppliers in the end would although they usually prefer to cooperate with several suppliers to avoid overly rely on one supplier. Most contracts need extra negotiation on legal details and concrete processes. For example, company has to decide whether to purchase product through product category or use supply inventory database system. By using E-sourcing system, you can obtain certain information such as product expense, supplier achievement, and analyzing during negotiation, etc to help clearing the relationship between eprocurement staff and supplier and in the end is able to conduct an agreement.

2.4 Spplier Relationship Management

Contract Performance

When esourcing for products, eprocurement staff has to track the performance of supplier and the reasons are:

3.Development of E-Sourcing

If every company uses e-sourcing to find supplier; the mission becomes complicated. Because even just to analyze one supplier, the evaluation would include product price, quality, size, estimated need-supply product amount, company objective, culture adoption, etc. Most of the companies work with hundreds or thousands of suppliers, that’s why coordinating and optimization is the final goal for esourcing. Hence most of esourcing methods are using product category to match qualified supplier in order to reduce eprocurement contract and supplier amount. To understand e-sourcing application’s core thinking, the following should be applied:

Structured Information Technology:
E-sourcing’s advantage could be achieved by using certain methods. However, important strategic profit can be obtained by collaborating with its internal-external information system.

Key Supplier Collaboration:
E-Sourcing outcome is limited if the process isn’t effectively supported by supplier. Supplier’s delaying is always caused by eprocurement team because of their lack of trust on the solution. Supplier should be able to adopt various software, platform and process.

Relationship and Connection Adjustment

The benefit for a high level e-sourcing application is that the e-procurement limited the problems between purchasing behavior and job capability.

E-procurement Organization Transforming

To emphasize the advantage of e-sourcing, eprocurement team has to transform the previous mode, supplier ordering management, into a supplier auction, negotiation and assistant management model. These experienced staff will be working cross-department or with different business units.

What e-sourcing can offer is tremendous! Even though there are some difficuties to overcome, it's still worthy. After all, e-sourcing has created a great supply chain with a phenomenon sourcing strategy.

Definition

Reverse Auction

A reverse auction is a tool used in industrial business-to-business eprocurement. It is a type of auction in which the role of the buyer and seller are reversed, with the primary objective to drive purchase prices downward. In a reverse auction, sellers compete to obtain business. This kind of business happens when there are more suppliers than procurers. During the esourcing process, there are many suppliers are offered for procurers to chose, hence the lowest price can be reached by reverse auction.

An Appendix

E-Sourcing solution development
To stay competitive in the business world, a new esourcing system is needed in order to solve advance strategic sourcing problems. That includes what to buy, where to buy and how to manage the profile and the whole process. Professionals are searching for an auto-strategic sourcing solution after seeing the profit that was brought from IT auto-application and they wish to make the same benefit from esourcing solution as well. For sure E-sourcing is an effective method to drive cash flow, to raise product ability and to become more efficiency. There are many tools already perform nicely and esourcing application is more similar to them.

An auto-strategic esourcing process to 2500 entrepreneurs is a grate opportunity to breed their ability. An analogist predicted the e-sourcing sales income in 2000 will raise from 275 million USD to 2005’s 3.5 billion and its CAGR(Compound Annual Growth Rate) will go up to 75%.( Source of the materials from AMR Research) E-sourcing auto-process can trim eprocurement costs down to 30% and esourcing cycle time will be reduced to 50%. ( Source of the materials from Goldman Sachs)

Current esourcing technology is already satisfying for what entrepreneurs need, nevertheless e-sourcing application helps managing staff to maintain a better work performance. It provids online tools, information and other tools for negotiation. E-sourcing auto-functionality collaborates with online tools to share information, communicate and its principle is to provide web technology or software to transfer strategic esourcing into an auto-process.

When e-sourcing was introduced, the cases that need internet solution still depend on out-sourcing or application service provider. For automatic functionality,only online negotiation and online auction are required. This kind of solution actually isn't as efficient as the old fashion way which is big trade deal and the e-procurement environment that is already pretty matured. Besides, e-sourcing solution wasn’t able to integrate the history data from before to the new esourcing system.