Michael Lamoureux’s blog Sourcing Innovation has had a number of very creative and detailed posts lately that are good reading. Last week, he had a very “innovative” take on the 12 days of Christmas which is one of the better series of posts I have seen in the blogosphere. I recommend reading it and am mildly jealous I did not think of the idea. However, I cannot type or think as fast as Michael so I am much better off just linking to it.
Also, some time ago he outlined rather complex topics regarding optimization technology as it relates to strategic sourcing and the vendor solutions available. Specifically, he tries to breakdown the industry from the perspective of the clear market leader and innovator - CombineNet. As always, he spent extensive time and research and has a very deep understanding of the entire concept.
At this, the end of the year, I decided to look forward to 2007, as best I could. My perspective is not as an analyst or professional prognosticator, but as an e-Sourcing software company. My opinions are shaped by what I hear from our active clients, what I hear from prospective clients, what I read, and other random inbound data points. Who knows if I know anything but that has not stopped me before.
Plan on more M & A activity and I believe at least one major vendor will be acquired outright. Frictionless was the last major tectonic shift in the e-Sourcing space and SAP is still trying to pull together a technology and marketing message that can beat BoBs. From our first-hand experience, that has not been close to perfected. Also, what is going to happen to VerticalNet? Forrester has them commented as “on the block” in their recent web cast. It is well known from the SEC documents that there are still outstanding financial commitments, spiraling losses, and; therefore, it is not difficult to imagine another Frictionless-SAP style acquisition, if the debt extension is not approved. Is this IBM’s acquisition to lose? Lastly, I have always been impressed with vendors like Nextance that maintain autonomy with a tight focus, can they make it through 2007 without being acquired?
Optimization will gain more mainstream traction in strategic sourcing. Advanced sourcing optimization is still on the periphery of standard best practices for purchasing teams and the technology is sometimes intimidating to the average buying teams. However, tools are becoming more user friendly and configurable with much more functionality than the current tool of choice - Excel. For instance, I spoke to a small retail chain recently that has 14 regional centers of operation and suppliers that can provide services to some or all locations. Optimization can help this company allocate business while maintaining the delivery constraints of each supplier as an individual rule. If this technology can be valuable to a small retailer, it can be useful to almost any company of size with semi-complex bid variables.
Expect to see more alignment in the triple crown of supply management (Spend Analysis, Strategic Sourcing, Contract Management). Aside from some obvious projected acquisitions, there should be more stand alone solutions banding together to compete against broad suites. These will come in the form of announced (and unannounced) alliances and cross-selling.
Assume the trend of expanded functionality coupled with flat pricing curves will continue. New releases are happening consistently and most technology is automatically delivered to the user communities. As e-Sourcing providers reach economies of scale with development and features, the users of e-Sourcing technology will benefit without incurring additional costs. Additionally, pricing pressure will strip margin from software sales, forcing high-margin e-Sourcing vendors to focus on services to maintain revenue levels.
Will worlds collide? Here I am referring to the unrelated - but yet still related - industries of CRM + SRM and PLM + SRM. It is a well-known insider secret that one particular e-Sourcing vendor would love to be acquired by Salesforce.com and has actively lobbied their position in San Francisco. This presumably would allow SF to compete on even stronger footing against nemesis, Oracle.
The same theory goes for PLM giant UGS who, not-so recently, gobbled up the old ebreviate technology and re-wrote it. Does the billion dollar software company try to devote resources to a stand-alone sourcing solution to compete head to head in the market? Or, does the technology get buried deep in the UGS tool set and we never hear from our lost brother in arms again? Their existing, seasoned sales team, is not going to be very motivated by relatively small e-Sourcing deals and UGS will absolutely need to reload with sales reps that are tasked with selling SRM as a focus.
There will be an emphasis, driven by practitioners, on concrete value and short term results — with a de-emphasis on unquantifiable process savings. This is directly correlated to an intense focus on driving better adoption and spend throughput in e-Sourcing tools. Although many e-Sourcing tools have vast and deep functionality, the reality is most companies use a small subset of the overall feature set. Getting the most out of what drives the value proposition will get more, well-deserved attention. This is equally the responsibility of the practitioners and the vendor/evangelists.
Offshore BPO providers will undercut the traditional leaders in the space with significantly more cost-effective direct offerings. I have seen the Infosys’ of the world make beach heads here in the US and expect to see massive growth and marketing efforts which will directly target Accenture, IBM, ICG and others. We have already seen strategic alliances formed, like Ketera + Infosys, and I expect to see this trend continue with voracity.
An increasing pace of global e-Sourcing adoption will keep growing in both the private and public sectors. Southern Europe will finally get e-Sourcing after years of slow growth and the high cost of employing talent will finally force countries like France to look outside French vendors to deliver high quality sourcing software. Europe is a highly insular continent with German companies wanted to work with German vendors, French with French, etc, etc. However, we are seeing an opening up in this philosophy which means that American e-Sourcing providers are growing their mainland European revenue. I still believe Northern Europe will far outpace countries like Spain and Italy, but progress is being made.
Who knows about any of this stuff but it is fun to speculate on. I am sure that if I am right on any of it, I will track back and remind every one. If I swing and miss…I will have long forgotten.
Most of the world will be taking a long weekend and maybe even next week off. Everyone at Iasta wishes all our clients and friends a happy holiday season. Next week, I will be posting my predictions for 2007 which might be insane or scary good! Only time will tell..
I scanned the recent report issued by Forrester titled: The Spend Management Market — How Big, Where Is It Growing, Who Are the Market Leaders. The presentation file is available here. Some of the findings that I thought were interesting included:
e-Procurement and e-Sourcing usage is the strongest with 7700 and 2900 adopters, respectively
In the same category, Spend Analysis lags well behind with only 400 adopters (amazing)
Since 2001, the number of vendors providing sourcing and procurement solutions has decreased by 33%
Forrester recommends working with BoBs and feels that ERP vendors still have large holes in their offerings
The market for solutions is not saturated and growth is expected
In North America, 36% of Global 2000 equivalent companies do not use any procurement or sourcing software solutions
SaaS demand is strong in e-Sourcing, EIPP, and Spend Analysis but weak for contract management and e-Procurement
In it, Forrester recommends seperating the decision between sourcing and contract management applications. I feel this comes down to what you need, though. Some CLM tools, like I-Many, are extremely comprehensive and do have stand-alone value. However, it is not necessarily the best thing to make this decision in a silo mentality, as the functionality is very inter-related between these areas and many sourcing apps support contract management functionality.
Also, I found many of the slides difficult to discern information from, as the survey questions merged procurement and sourcing solutions into a super-category. This made it much harder for me to get value out of the trends and percentages that were discussed.
Many of the Forrester Wave reports will be updated in early 2007. However, it will probably be another 8 months until the e-Sourcing Wave is done again.
In this piece (now restricted to AMR clients only), AMR projects that the supply management market is looking at a continued growth of 9% a year and that SaaS will continue to aid in the growth and demand is expected to increase at a Compound Annual Growth Rate (CAGR) of 26% over the next five years.
Mickey also notes that, moving forward, solution companies will likely round out their products through partnerships or acquisitions, and that potential extensions may include:
combined suites of sourcing and procurement systems
Product Life cycle Management (PLM)
“What-if” cost modeling tied to SKUs for immediate margin improvements
Supply Risk Management (SRM)
Integrated Master Data Management (MDM) functionality
Although I more or less agree, what I’d like to point out is that most solution companies still do not have solutions that cover the end-to-end sourcing cycle or the end-to-end procurement cycle. In sourcing, many suite vendors are missing supplier management or supplier self service, decision optimization, and/or integrated compliance tracking in their contract management system (if they even have one). In procurement, many companies do not have the end-to-end web-enabled EIPP (Electronic Invoice Presentation and Payment) solutions. Etc.
I think that in the near future, you will see companies focused on rounding out their core solutions in their area of expertise and building integration points into systems that implement processes that come before or after the processes enabled by their systems. In other words, the initial focus will be on rounding out current offerings and building integration points between sourcing systems and procurement systems.
Then the focus will be on collaboration, since that is a prerequisite for good PLM in a world where product design occurs across your supply chain.
As for MDM, I believe that most companies with integrated suites have already addressed that problem, and there are already companies out there offering cost modeling templates and solutions.
SRM is coming, but first of all companies need to get good, basic, supplier management and visibility systems in place - since you cannot manage a risk before you can even identify what it is and track it.
Mickey was right … but I think most companies still have to fill in some basic capabilities before they can move up the solutions ladder. One step at a time.
Software as a service (SaaS) represented approximately 5 percent of business software revenue in 2005 and, by 2011, 25 percent of new business software will be delivered as SaaS, according to Gartner, Inc.
SaaS is hosted software based on a single set of common code and data definitions that are consumed in a one-to-many model by all contracted customers, at any time, on a pay-for-use basis, or as a subscription based on usage metrics.
“As SaaS became a viable delivery model from 2000 to 2003, most providers supplied ‘good enough’ functionality with core configuration capabilities. SaaS and solving business complexity were two phrases not associated with each other,” Robert DeSisto, research vice president for Gartner. “The trend has clearly begun to change. For example, SaaS providers are enhancing their software functionality and improving the ease with which companies can customize and more uniquely configure SaaS software to meet business requirements.”
The adoption of the SaaS software delivery model has varied significantly by market segment. SaaS accounted for approximately 8 percent of CRM total software revenue in 2005 (Gartner estimates 2006 SaaS revenue to reach 12 percent of total CRM software revenue) and integration as a service had 10 percent adoption in its market. But, other markets, such as the ERP and supply chain management segments, had less than 4 percent adoption.
“The majority of SaaS deployments continued to be focused in individual departmental initiatives, such as sales force automation, except in small and medium size businesses (SMBs). In SMBs, we are beginning to see vendors provide capabilities to support more end-to-end processes, such as opportunity to order and in integration as a service where companies are already using SaaS for large projects,” Mr. DeSisto said. “However, no provider offers the functionality capability or process management capabilities on par with on premise software to support end-to-end cross departmental business flows.”
As SaaS solutions become more mainstream, and more enterprises adopt them, the dynamic of how they are bought and sold is changing. During the past few years, the primary acquirer of SaaS has been a line of business leader, such as the vice president of sales or the head of human resources, without much involvement of central IT.
“The limited central IT involvement is changing as the IT organization realizes that SaaS solutions are here to stay and that they must look to leverage the upside potential of these approaches, rather than see them as a threat to their existing modus operandi,” Mr. DeSisto said. “Line of business leaders and central IT should be involved in the selection process and then in the ongoing management of a SaaS contract. Having both parties represented leads to better initial decisions being made and to more efficient, effective ongoing management.”
Coming across this report, I found it interesting to see the adoption increasing each year but also perplexing to see the number so low (4%) for the parent of eSourcing (Supply Chain Management). What this is might be showing, is that eSourcing is MUCH less expensive than its related brethren and therefore taking up a very small proportion of the overall market. Also, the footprint might technically be larger, due to the metric only tracking license revenue, and not the final S in SaaS (services). Associated services with eSourcing are extremely valuable to the company and make up a significant portion of overall revenue for most vendors. I know for a fact that most companies choose SaaS for e-Sourcing, as long as they don’t come from a legacy environment pre-2003. Even those installations are being strong-armed into shifting from installed to on-demand by the respective vendors.
I use this as a recurring topic because it is easy for vendors and users in e-Sourcing to forget that SaaS is not the only mode of software delivery. It is still growing in popularity and showing that it is a useful method of deployment but, clearly, not everyone is sold and needs to be nudged along the path to acceptance.
As an unbiased third party – I’m about as unbiased as you can get given the fact that I used to work for a bigger rival of Iasta’s and currently know just about every major vendor in the space and count many as consulting clients – I can say that the strategy that Iasta is going down by extending its SmartSource capability and not charging more for additional breadth and depth is a good one for practitioners. Because ultimately, it’s going to cause price compression in the market, as larger providers are forced to bundle more for a fixed – or at least a lower — price as well. Iasta is also being honest about their capabilities (at least as they’ve pitched them to me). For example, we can all agree that Iasta’s latest contract management extension does not approach the capabilities of one large 128 vendor, but for many companies, basic contract management capability is a huge step over what they have now (which is a shared C-Drive and a bunch of word documents scattered every which way around the globe).
On a somewhat unrelated note, I wonder if there’s also a play for virtual extensions to sourcing suites which are free or incredibly cheap and can be downloaded or shared in a central repository on the Web. Think app-exchange meets Open Source apps meets Spend Management. They’re already small providers like Buyer Analytics who offer cheap extensions to Excel. Why not extend this into the business application realm as well? Call me crazy, but as an old friend who knows more about this sector than I ever will told me yesterday, “things want to be free”. Whether it’s a process-bolt on supplier content, the Google model has got potential, even in the Spend Management world. I reckon we’ve not even seen the start of what the dominant – at least from a revenue generation standpoint – business models in the sourcing sector will look like a decade down the road.
Blogging is still a relatively new concept to many people, so I thought a little explanation would be good for those who want to understand a little more about what all of this is.
Per Wikipedia: A blog is a website where entries are made in journal style and displayed in a reverse chronological order. The term “blog” is derived from “Web log.” “Blog” can also be used as a verb, meaning to maintain or add content to a blog.
You can also read some detail about how to get the most out of blogs at these sites:
If you are reading multiple blogs per day, it can get overwhelming to keep up. A smart idea, is to set up RSS feeds in your Internet browser. IE, Firefox and Opera all support this feature and all blogs should have the feed setup ready to push content to your browser. This will consolidate everything into one set of streams that can be reviewed very quickly to scan for topics of interest. IE7 has made real improvements here and allows toggling back and forth between favorites and feeds, you can also set how often the feeds are updated. As usual, it is late to the innovation game but does better than before.
You can also review profiles of blogs on Technorati which provides some interesting insight and statistics into a blogs’ value and penetration.
There is a never ending amount of information that can help making blog reading more efficient and useful. One thing I hate, is looking at the clock and seeing how late it is, because I have been clicking around until midnight! This sites have numerous speciality hints and hacks that can be really useful.
This week, Arc Advisory published its 5 year look at supplier relationship management, which is available on their website for a fee. Among the issues addressed were:
Strategic Issues
ARC has sized the 2006 SRM market at $1.56 billion. The worldwide market for SRM is expected to grow at a compounded annual growth rate (CAGR) of 8.2% over the next five years.
How much of the Supplier Relationship Management market is attributable to each of the application categories?
What application categories will experience the greatest growth?
How do ERP providers “stack-up” against the integrated suite providers?
How much of the revenue in the market is attributable to Software, Implementation Services, Maintenance & Support, and Software-as-a-Service?
For each segment, who are the market leaders and how fast is the segment growing?
Even though I participated in the report data gathering and gave a briefing for Arc, I did not receive a copy of the report and do not have any opinions to share but would assume that Iasta is one of the 28 companies profiled in the report. I will say, however, that it is very nice to see some new blood and competition in the analyst industry.
At long last, Iasta has finally released our newest version of SmartSource. I generally do not discuss happenings in Iasta-land on E-Sourcing Forum but this is significant from my perspective because we have been so excited about unleashing this monster, and, because it changes the e-Sourcing landscape even more with our expanding breadth across supply management. Although none of our competitors will ever admit it, Iasta is now a player in end to end supply management and we did it with all of our own code. There was no cheating by acquiring technology (although we did partner for some). If you are interested, you can read the full press release here. As a summary, here is what changed:
Iasta has made the release of SmartAnalytics - a spend analysis platform that few can rival. Look for more blogs coming on spend visibility technology and best practices. This is the first new platform we have introduced to complement SmartSource.
Major enhancements to the Executive Dashboard and Management Reporting functionality.
New user enhancements to Decision Optimization, including better data loading capability.
A new, integrated module for Contract Management is available that allows users to close the loop on the sourcing lifecycle.
Over 200 client feature requests.
Iasta has been running well-attended group webinars for weeks now and been getting a very positive response from our user community. If you did not get a chance to view some of the highlights, please let us know and we would be happy to schedule some time to bring your company up to speed. Thanks for all the support and feedback that went into this release. We still have more surprises up our sleeve in 2007 as we will continue to embed huge amounts of functionality into SmartSource without pegging our clients with a seven figure smack-down. Some companies call them “modules”, we call it our product.
So, to highlight this glorious occasion, I have a tribute that I have always found enjoyable and strangely keeps getting funnier while simultaneously more disturbing:
The European Leaders Network recently ran an article entitled Procurement Technology: The Skills Deficit where the author attempts to clarify the difference between what SaaS is and what SaaS is not.
The article points out that SaaS is not simply for the small to medium size enterprise, but for an organization of any size, even a large one, as it offers increased choice, flexibility, and scalability. Furthermore, it points out that software is only part of the solution - where technical product excellence is fully backed up and integrated with relevant market knowledge and expertise. Consulting services that include sourcing strategy development and sourcing process execution are also required for a true SaaS eSourcing solution and all the benefits of what it has to offer.
Although this should be old news (Iasta has been offering a true SaaS solution since 2002 and seen the benefits our customers have reaped), it is getting rehashed again and again as new players enter the SaaS market, and make a lot of noise in an attempt to gain traction.
What isn’t old news is that just like many customers who have not yet embraced SaaS or really strived to fully understand the benefits it provides, many providers still believe that ASP (Application Service Provider) is equivalent to SaaS, and simply wrap their traditional offerings in a web interface and call them on-demand. Although there may be no difference from a user view point, what you should understand is that a web-service interface alone does not a SaaS solution make. Not only are SaaS solutions “multi-tenant, allowing the same service to be delivered, securely, to multiple customers”, as the article points out, but they are built to be that way from the ground up. Those solutions that are not will scale poorly as the provider’s customer base increases, and your quality of service will decrease. Furthermore, an application not built as a true on-demand solution may use proprietary data formats, making it difficult to get data into or out of the solution, and you may inadvertently become “locked-in” after a certain amount of time passes as it becomes next to impossible to efficiently extract all of your data from the system.
Therefore, although more SaaS providers might sound like good news, the truth is that it is only good news for you if the component software solution was built as an on-demand solution from the ground-up. Thus, you should be sure to do your due diligence before selecting a solution.
Add commentDecember 11th, 2006Sean Delaney - Iasta UK
In a recent survey carried out by Supply Management (page 10, 2nd November issue), 100 buyers were asked does procurement have control of Temporary and interim agency staff? 56% said NO!
A follow on article (Page 13) quoted that that in the UK, local government spent £2.2bn ($4.4bn) per year on temporary staff. This accounted for 10% of the UK’s temporary labour market. In the earlier article it is suggested that the best way to handle this spend was to create a managed service between your organisation and the agencies.
What caught my attention is not the overall value of this spend because if Public sector accounts for 40% of GDP then this figure is low and only likely to grow. However what is astonishing is that eSourcing is not being recommended as a method to deliver results.
The benefits of esourcing on this category are even more pronounced. It is so often the case there are so many suppliers being used by HR that procurement are unable to unpick the spend. The problem is compounded by the poor relationship between HR and Procurement.
eSourcing will help both procurement and HR to qualify the bidders prior to the start of the live event and get them to sign up to your terms. In fact it is not unusual to find 70 suppliers and numerous delivery points. In such circumstances the only realistic way of leverage savings is through eSourcing!
However I think the key here is the relationship between HR and procurement (in much the same way as I discussed in an earlier blog) but eSourcing is an excellent way to reach out internally across the organisation. eSourcing would give HR even greater visibility and input whilst allowing procurement to have a better understanding of the type of spend and deliver great savings back to the HR department.
56% of the respondents are missing a real opportunity!
I do not spend much time discussing e-Procurement on E-Sourcing Forum but do want to bring attention to a new blog dedicated to the subject. Coupa seems to have had a really good launch and Dave and Noah have plenty of experience and talent to discuss e-Procurement. Right now, the content is just ramping up and I am sure will get more and more interesting over time as their experiences and products develop and mature. You can read the Coupa blog here.
Purchasing recently ran the article Billions to be saved by offshoring procurement in response to the Hackett Group’s recent press release that Offshoring of Back-Office Functions Could Generate $58 Billion in Annual Savings for Fortune 500 based on recently completed research.
The article quotes that “advances in technology, along with increasingly educated global work forces, enable the portability of business support activities in areas like information technology, finance, human resources and procurement”. Furthermore, it quotes that “the average Fortune 500 company could save almost $10 million a year by outsourcing or offshoring procurement functions such as purchase order processing and sourcing execution. Those moves would impact, on average, 275 procurement jobs per company”.
The reason, as quoted, is that “many companies are relying on outdated sourcing analysis techniques that lead them to materially underestimate the benefit available through off-shoring back office operations. With labor arbitrage savings nearing 60%, Hackett finds that executives must analyze their process optimization opportunities to capture the potential value of centralization”.
However, what the article does not note is that there is absolutely no reason why firms can not bring their sourcing analysis techniques up to date using best of breed (on-demand) eSourcing suites that integrate best practices, streamline sourcing cycles, and allow sourcing professionals to bring significantly more spend under management with considerable savings expectations.
Furthermore, there are a number of eProcurement suites that can greatly streamline basic procurement functions such as order processing and invoice reconciliation, which means that these functions can be kept in house with minimal labor, which can be redirected to more strategic sourcing functions, allowing you to bring even more spend under management!
At Iasta, we have enabled numerous Fortune 500 organizations with eSourcing and have found that most of our customers are able to significantly increase spend under management and drive greater cost savings, as a result. I believe that, armed with the right technology and best practices, local operations can perform better than offshore operations and that the additional savings generated will be more than the labor savings associated with offshoring. I am sure opinions vary wildly on this, too.
In the October Issue of Inside Supply Management, Lisanne Bogle of MGM Mirage, outlines ideas for effective supplier relationships. The article requires membership but she goes beyond the expected metrics of price, quality and service. All of these are, of course, important, but there are other things to consider for establishing a win-win relationship with suppliers.
Supplier Size: “Bigger is not always better” and many times the perception of the smaller vendors is unfounded and highly inaccurate. We could not agree more - good take.
Reciprocity: Should your suppliers also be your customers? A complicated question and, in some cases, yes. Ms. Bogle brings up points about ethical standards and restraint of trade considerations. The final rationale should be the total cost of ownership which is impacted by this.
Supplier Diversity: Capturing and maintaining good data on supplier diversity can help with the problem of reducing supply base while increasing diversity spend. This is discussed as a very difficult problem, and rightly so but enriched data in a Spend Analysis package should help.
The article concludes with the idea that, regardless of size, under performers need to be communicated with and given time frames for correction or be removed from the supply base. All sound advice.
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