The E-Sourcing Limbo: How Low Will They Go?
Pierre Mitchell

While reverse auctions are famous for seeing just how low a supplier will make an offer, the same can be said of the suppliers of reverse auction tools. Although the Return on Investment (ROI) is ridiculously high in e-sourcing--usually greater than 10 times--things are tough these days. Some procurement organizations, which are just getting started in e-sourcing and want to dabble in running a competitive bidding event, like a reverse auction. This is absolutely fine if you pick the right spending category and run the auction properly. The difficulty of picking the right spending category really hit home when a procurement manager cited a horror story of how she was personally trying to help keep a bathroom clean when the incumbent janitorial services supplier dropped its service levels in equal measure with the post-auction price; that is a very bad place to be indeed.

Running the auction properly requires that a user be specifically trained on how to properly prepare for and conduct such an event. Yet, even though some procurement organizations want this type of more full-service support, they don't always want IT involved (which wants nothing to do with such vendors) and they don't have a lot of discretionary money to spend.

If it's free, it's me--If that's your motto, then you can use Sorcity, which will charge you nothing, but charge your suppliers 2% of the award value. You could also use Thomas Publishing's MFGQuote.com site and do free RFQs and supplier discovery (but not a reverse auction). However, generally free is not good for the buyer because there is usually poor commitment, as results have shown.

Pay by the drink--This method heralds the return of per-event pricing. Whip out your corporate procurement card and you're off to the races. Seriously, no baby step is too small, and some vendors like Moai Technologies, Global eProcure, Orbis Online, Perfect, and others are willing to oblige (FreeMarkets and Procuri may do this, but really for customers they deem serious to eventually go to the next level). Global eProcure likes to call itself "FreeMarkets for the mid-market" and Moai is going downmarket similarly.

We just caught up with Moai, and it's doing fine, running lean-and-mean, generating cash, and now trying to target the mid-market with a low-to-mid six-figure system for the cash-strapped buyer. Moai's OnDemandSourcing is definitely tailor-made for upper mid-market firms that need a fast, friendly system for their few effective spending categories, but it's also great for large firms looking to take one small step toward e-sourcing, but not wanting to take one giant leap toward a six-figure e-sourcing suite. Vendors with one eye on the mid-market like Ketera, eScout, and ICG Commerce should keep the other eye on customers wanting this type of low-end option.

Larger firms will eventually look for a broader system though, looking to suite-type functionality (such as automating a sourcing program, not just bidding events). A really innovative system is CGE&Y offering up category knowledge packs implemented in Emptoris's suite. For very low six figures, you could get, say, a "10 pack" of category workflows, cost models, RFx templates, supply market analyses, and professional services support, served up via a term license, on top of one of the leading e-sourcing suites. Braxton is also working on something similar with Frictionless Commerce. Users get their category-specific results and also see the benefits of a broader suite. Procuri, Ariba, and FreeMarkets certainly have a terrific opportunity to do something similar as a community-type initiative directly with their installed bases. Yet, until that time, some users need low-end offerings--in these economic times, less is definitely more.