Forget online auctions. Retailers are now using sophisticated web-based sourcing systems to speed up processes and to save on goods and delivery costs. And they’re just getting warmed up:

Web-based sourcing is nothing new in the retail industry. For the past few years, retailers have turned to the Web for both indirect goods and merchandise, industry analysts note. But according to a recent Internet Retailer article, the industry is now “reaching a critical point of moving beyond the basics of online auctions to using more complex sourcing systems.” These more advanced systems are allowing companies to spend less on goods and delivery. What’s more, they’re also compressing the time it takes for a product to get to stores.

In short, Web-based sourcing is translating to much greater control over procurement. “We’re seeing people getting 20% improvements in production and lead times,” comments Alexi Sarnevitz, retail industry analyst with AMR Research Inc., to Internet Retailer. “Retailers no longer have to deal with given lead times from suppliers.” What’s out: an opaque, overly complicated process that defies measurement. What’s in: “a clear process flow, shared online calendar dates, and knowing at what stage every sourced item is in throughout the design and development process,” says Sarnevitz.

And this is just the tip of the iceberg, he says. Now that the sourcing process is more visible and controllable, retailers can expect more accountability from suppliers and can continuously improve the whole process. And web-based sourcing is not limited to retailers’ private label products. Along with sourcing the materials required for production, the Internet is also proving useful in sourcing indirect materials and services–those that are needed in the day-to-day operations of businesses.

Netherlands-based Royal Ahold–which spends over $3 billion a year on indirect goods and services from about 40,000 suppliers in the U.S. alone–has already saved $350 million on procurement items through web-based sourcing. Over the past three years, the company started deploying a web-based system to get a better grasp of how it spent as an organization. And the system delivered the visibility and centralization the company sought. In fact, Dave Picarillo, vice president of sourcing at BrainTree Sourcing, the Ahold division in charge of sourcing goods and services for six grocery brands and over 1,200 supermarkets in the U.S., tells Internet Retailer that he can now “walk into any Ahold store and know exactly how much we spent on the tile I’m standing on.” Next up for Ahold: extending the system to its entire indirect goods sourcing and its private label sourcing.

And more savings are expected for retailers in general. For instance, Emptoris Inc., which provided Ahold with its web-based sourcing system, may launch new capabilities this year that will allow retailers to rate suppliers on how well they can provide a wider range of products or services. This way, retailers can save even more by consolidating orders with a smaller number of suppliers. Indeed, web-based sourcing has arrived, and it’s just getting rolling.

Source:

The New Reality of Sourcing
Paul Demery
Internet Retailer, February 2005
internetretailer.com/article.asp?id=14006