One of the beauties of optimization, he explains, is that it frees both buyers and sellers from the straitjackets of fixed bundles of goods or services against which bids are solicited. That means that online buyers and sellers can now do something they once couldn't. Sellers can bid for selected parts of lots, or include in their offering nonstandard terms such as volume discounts, extended price validities or other goodies not explicitly covered by the bidding terms. Buyers, for their part, can evaluate those bonuses. In one sense, it's the answer to Ametek's problem of moving its wire buying online. Instead of forcing bidders to bid for every one of the couple of dozen wire gauges the company uses, bidders can bid to their strengths and sweeten those bids with volume discounts, or fix them for a period of time. It doesn't sound too difficult, but in practice, disentangling the merits of a dozen suppliers' different bids is surprisingly challenging - which is why companies have usually opted to enforce standardization in the first place.

Both Procter & Gamble and Bayer have recently deployed optimization technology from CombineNet that allows suppliers to submit these so-called expressive bids and buyers to evaluate them. The optimization involved, says Dennis Begg, Procter & Gamble's associate director of purchase innovation, "is a combination of linear programming and mixed-integer programming, coupled to a very efficient solver." (A solver is a piece of software that works out difficult calculations.) Boiled down, for those that can remember Economics 101, it's similar to applying the law of comparative advantage to everyday purchases.

"Auctions are a zero-sum game," explains Begg, "but by allowing suppliers to bid to their own strengths, and squeeze out their own inefficiencies, expressive bidding adds value."

Tom Phalin, director of logistics procurement at Bayer, has a straightforward endorsement of the bottom-line benefits of expressive bidding. Last year, the company sought expressive bids for its Nafta ocean-going freight business. "We weren't very confident that we'd see lower prices at all," he says. "But in the event, we reduced our ocean freight costs by 15 percent, signing contracts with 11 separate steamship companies." This year, Bayer is repeating the process on a global scale.

The E-Procurement Future

Today, both the technology and the buyer's expectations have matured to the point where e-procurement can genuinely be used to source things other than catalog-based indirect goods. Direct materials, and the services that companies buy, are now real options for mainstream businesses - and not just for the few companies whose business models and operations lend themselves to it.

To manage expectations of an e-procurement effort, it's important to remember that the ROI will come only partly through lower purchasing prices. The rest of the return will come from efficiency improvements within the buying process. And the job of moving those improvements from the theoretical to the practical often falls upon the CIO.