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eSourcing: What is eSourcing & What are the Benefits?

Barbara Cook
By Barbara Cook
Barbara Cook

Barbara Cook

Barbara is a financial writer for Tipalti and other successful B2B businesses, including SaaS and financial companies. She is a former CFO for fast-growing tech companies with Deloitte audit experience. Barbara has an MBA from The University of Texas and an active CPA license. When she’s not writing, Barbara likes to research public companies and play Pickleball, Texas Hold ‘em poker, bridge, and Mah Jongg.

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Updated September 18, 2024
Procurement
Procurement Automation
Supplier Management
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Ready to modernize your purchasing process and reduce your AP workload through automation? Let\’s dive in.

Using online eSourcing automation software systems helps you make the best choices based on multi-factor competitive bids from several vendors and provides other benefits. 

What Is eSourcing?

eSourcing is the process of collecting bids from multiple suppliers through an online portal in order to determine which supplier is the best fit for your business. By comparing supplier information such as quotations, proposals, bids and order negotiations, eSourcing is part of the strategic sourcing process that helps you choose the best supplier relationships

eSourcing may be called electronic sourcing. 

How Does eSourcing Work?

eSourcing works by using online software that includes a series of automated steps. These eSourcing steps include identifying and qualifying vendors, bidding, selecting one or more suppliers, and contracting to purchase goods or services. 

In some industries, including significant government and commercial contracts, a tendering process is used to submit bids and select vendors. eSourcing can be used for the tendering process. 

eSourcing process steps are:

  1. Determining purchase contract specifications and requirements
  2. Creating and distributing RFI questionnaires, RFPs, or RFQs to suppliers
  3. Centrally storing all eSourcing documents sent and received through online portal
  4. Pre-qualifying suppliers 
  5. Holding eAuctions, if applicable
  6. Reviewing competitive bids from qualified suppliers
  7. Performing analysis and vendor evaluation
  8. Negotiating with suppliers and checking references
  9. Communicating with suppliers under consideration through the portal
  10. Selecting supplier(s) for contract award or purchase 
  11. Creating contracts
  12. Sending contracts or purchase orders to winning suppliers
  13. Reviewing automated spend analysis by vendor and purchase category
  14. Maintaining supply chain and supplier relationship management
  15. Conducting post-contract vendor evaluation

eSourcing vs eProcurement

When comparing eSourcing vs eProcurement, eSourcing precedes eProcurement. 

eSourcing addresses product or service requirements, identifies, evaluates, and selects potential suppliers before actually purchasing. eSourcing platforms enable bidding, negotiation, and collaboration through an eSourcing portal and centralize document management for quotes, proposals, and contracts for contract lifecycle management.

eProcurement uses online software to perform the procurement process electronically for the procurement team, beginning with creating purchase requisitions and purchase orders, then placing the order with a reliable vendor based on eSourcing process results. 

For procurement vs purchasing, procurement is frequently used as another name for purchasing, although procurement may be more long-term and strategic than tactical, short-term purchasing. 

Types of eSourcing Documents

Documents relating to eSourcing include RFI (request for information about supplier capabilities), RFP (request for proposal), questionnaires, RFQ (request for quotation), RFB (request for bid) proposals, and contracts. The general term to refer to any type of request, including RFI, RFP, RFQ, and RFB, is RFx. 

Documents can be uploaded into the eSourcing portal. Formats that can be used to import and export documents include CSV and Excel. 

Common eSourcing Tools 

You need to select the best eSourcing tools for your business needs. Specialized online software is an eSourcing tool that helps your company gather proposals and bids, gain efficiency and cost savings, and centralize document management related to eSourcing products and services from potential suppliers. 

eSourcing tools help you prepare documents like RFI questionnaires, RFPs,  RFQs, and customized contracts. 

The eSourcing platform should include an online software portal for communication between the supplier contenders and the buyer, document collection and review, and notifications. 

The eSourcing software may offer eAuctions which are sourcing events with different formats and templates within each general type. Reverse Auctions are visible bids submitted by multiple qualified potential suppliers, conducted in real-time with the buyer. If potential qualified vendors can’t see the activity of any other bidders, the eAuctions are called Step Auctions. 

Reverse eAuctions may have different characteristics, depending on the auction type. Types of reverse eAuctions include List, Cherry Lot, and Cherry Picking. Types of step eAuctions include Dutch auctions and Japanese auctions. 

Businesses should be able to perform analyses of bids and suppliers after auctions to make decisions. Spend analysis by vendor and category of purchase is a valuable software feature. 

The software may solely handle e-sourcing or it may combine e-sourcing for strategic sourcing and eProcurement to assist procurement professionals. It should provide an auditing trail for bids and transactions. 

eSourcing Software Evaluation 

Initially, familiarize yourself with eSourcing software capabilities, gaining enough knowledge to decide what your business needs may be. 

Prepare a custom checklist of your company’s required and nice to have eSourcing software features as an essential step. You can revise the checklist as you gain more knowledge and understand eSourcing software functionality and features better. 

Refer to at least a few eSourcing software reviews on the Internet to discover the possibilities and help you select a software vendor. Study software vendor websites, read white papers describing their eSourcing software, and attend relevant pre-purchase webinars offered. 

Because eSourcing software can significantly improve profitability by lowering costs through better vendor selection, devote enough time to evaluate and find the best eSourcing software without getting bogged down in the decision. The longer you delay, the more cost savings your business may be missing. 

Determine whether the best eSourcing software is combined with eProcurement.  Or does a second software solution need to be evaluated and selected for comprehensive sourcing and procurement automation? 

Examples of companies that provide software for eSourcing or eProcurement are Procol, SAP Ariba, Workday Strategic Sourcing, Coupa, Jaggaer, and Tipalti approve (renamed from approve.com). 

Benefits of eSourcing

Benefits of eSourcing include identifying the best price for business cost savings. 

Using eSourcing software will streamline workflow, save time, and let users perform the sourcing process electronically online through automation.  eSourcing replaces inefficient and less effective manual methods that sourcing professionals have customarily used for sourcing activities. 

eSourcing can improve the quality of products and supplier services and present ways to meet supply chain sustainability initiatives and other company-defined goals for sourcing.

eSourcing advantages also include having centralized document storage and management for buyers and sellers, notifications, and communications within the buyer’s eSourcing portal. 

eSourcing benefits include gaining access to best practices that the software developer identifies from benchmarking many sourcing and purchasing departments and builds into their eSourcing system. 

Automated online eSourcing adds benefits within the source to pay process to attain your business goals efficiently and effectively. 

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