Posts filed under 'e-Sourcing Marketplace'
April 15th, 2008
David Bush - Iasta
I am a little late getting to this report from AMR, which is reserved for members only (although SCDigest did provide a little insight, as did Spend Matters).
High level take aways stated that supply management technology is a key enabler for value chain success, reflected by an anticipated 14.5% increase in spending in 2008. Cost savings and procurement efficiency are two of the primary goals desired by purchasing respondents, and also, it was noted that the spend visibility and contract management were ranked 1 and 2 in the list of Most Strategic Investments.
Another interesting statistic showed that Sourcing tools were the most commonly deployed applications at companies over $1b in revenue, at 67%. That is a very strong show of acceptance of eSourcing. It also showed that an additional 27% of respondents intended to deploy sourcing application, which would total 94%. That seems a little odd to me and possibly I am missing the relationship between those two questions.
One of AMR’s key conclusions drawn was:
Our study identifies a shift away from ERP platforms over the next three years for most supply management segments in favor of best-of-breed and custom applications that are expected to provide the greatest innovation, functionality, and transformational capability in supply management.
This was backed by:
The largest supply management budget segment is internal head count. Tied with the ERP platform as the main supply management application, one definitely questions the use of technology and services to integrate and streamline processes in supply management. With high dollars in these three segments, the opportunity for integration, cycle time reduction, and savings is significant. This is good news for supply management technology vendors, service providers, and business process outsourcing firms.
…
While most of the 15 segments in the United States were sourced using ERP platforms, custom and best-of-breed vendors continued to be deployed and appear to be cutting into ERP market share, specifically in the areas of travel and expense, services procurement, supplier connectivity, SPM, supply visibility, supplier portals, and financial settlement.
Clearly, AMR is very bullish on supply management spending patterns, but also are touting the trend of BoB vendors digging into the ERP meat and potatoes.
Entry Filed under: Analysts/Research, Contract Management, General, Spend Analysis, Technology, e-Sourcing Marketplace
April 11th, 2008
Oscar Pacheco - Iasta
Companies spend an enormous amount of money on buying services, including temporary labor, consulting, cleaning, relocation, accounting, security, legal, financial, and on and on. Usually these services are not “direct” cost items and have not traditionally been managed by the purchasing organization.
That has been changing, according to a purchasing.com article, How+Why you should be buying Services.
There are many valid reasons to include services as part of the spend that is managed by purchasing, including of course saving, but that is often not the paramount reason. The article discusses numerous good ones such as reduction in number of vendors, spend consolidation, standardization of services, and cost avoidance.
What is most interesting is that the process of tackling services spend is similar to direct spend, but the approach to sourcing needs to be different. Aspects such as quality, requirements, and quantities are not easy to determine, and are often based on stakeholders opinions rather than hard facts. This may make these areas harder to source but it is worth the effort. Develop a process, use the sourcing tools available and go after services spend.
Entry Filed under: General, Supply Management Best Practices, e-Sourcing Marketplace
April 3rd, 2008
David Bush - Iasta
This week, the SEC documents from Ariba filing of the recent acquisitions, were made public. Wow, they are packed full with incredible information. For those that do not enjoy reading financial filings, here are some of the gorey details of the string of acquisitions that led us to today.
- Procuri was losing money and not getting close to reversing the trend. -$6.2M in 2005; -$7.6M in 2006; -$4.3M in first 9 months of 2007. So, the bleeding was slooowing, but…you can put lipstick on a pig too. Procuri was not a “pig” but I will explain this analogy later.
- It appears at least $37.5M in venture capital and related debt instruments were used from cradle to grave to create the sale of $92M in stock and cash plus $8M in debt relief.
- Sales were growing rapidly: $17.4M in 2005, $22.3M in 2006, and $21.2M in first 9 months of 2007. Of course, one has to remember there were acquisitions of TrueSource and CMSI that increased this growth percentage. These numbers do not reflect the COST of the growth.
- Procuri paid $2.2M for TrueSource ($1.5M in cash and $684K in Stock). TrueSource only had $5k in the checking account and $150k in AR, at the time.
- Procuri paid $14.1M for CMSI ($7.1M in cash, $562K in stock, $4.6M in debt issuance (a note payable at 10%!), and $1.7M in liabilities assumed) CMSI had $533,000 in the checking account and $858,000 in AR (+ $426K in fixed assets) when acquired.
- Procuri spent a WHOPPING 70% of inbound revenue on sales and marketing expenses (if you can assume most of the COGS were sales/marketing commissions).
The official 10K is not yet available, but this is a very detailed break down of the evolution of Procuri. I mentioned previously that those losses amounted to putting lipstick on a pig. (I have a better analogy, but this is a happy blog). In this case, I am only referring to the investors that essentially cut bait and ran. The two main VC broke even, in VC terms, and ran away from the scene of the crime. When they started this in 1999-2000, they were certainly expecting a 10:1 minimum ROI. To see that they would never even get to 2:1, they took this offer and moved to the next opportunity. It is very likely that a select few managers at Procuri, did have exercisable options that made them quite wealthy (or wealthier), so this was a big pay day for the chosen few.
However, it is obvious that this was ALWAYS the plan, and it worked. Over investment in S/M, with huge losses, paid off in a larger final sale price. The valuation (3.6 : 1) was outpacing the losses and it was a calculated gamble that did not crap out. Although, that is speaking from the shareholder perspective. I do not think any one can effectively argue that the clients were the primary concern at any stage.
Entry Filed under: General, e-Sourcing Marketplace
March 20th, 2008
Dave Cravens - Iasta
Back in the go-go days at the turn of the millenium, digital marketplaces were taking the world by storm. Everywhere you looked, industry groups were creating business-to-business marketplaces. Sales at Commerce One and similar software companies were exploding by selling to digital marketplaces and exchanges. Millions of dollars in revenue were anticipated by charging transaction fees to suppliers. Large amounts of venture capital poured in for just about any market segment imaginable.
Unfortunately, “the music stopped” when the suppliers rebelled and the revenue did not materialize. The VC’s closed the money spigots and it all came crashing down. After the dust settled, a few of these marketplaces actually survived. How? By evolving their business models to one that adds value for their members, not creating friction between buyers & suppliers. The survivors use their domain knowledge and category-specific expertise to help aggregate spend across multiple companies and source group contracts based on greater volumes and economies of scale. The buyers save money, the suppliers increase revenue and the marketplaces earn consulting revenue. Everyone wins in this scenario. This is one of the many ways that these organizations have adapted for survival in the current supply management landscape.
In this new business model, eSourcing tools play a major role in driving value, as opposed to the eProcurement tools used in the old paradigm. By tying the wisdom of their industry veterans with the productivity of an SRM platform, these companies provide their clients the benefits of authentic supplier consolidation and cost take-out.
What’s next? Advanced Sourcing Optimization will enable them to extend their reach beyond the “low hanging fruit” captured in reverse auctions or comprehensive RFx’s. By targeting complex categories that historically take weeks, or months, of analyst time, marketplaces will increase their applicability to more strategic categories and continue to drive value to their members. Ultimately, vertical marketplaces are not only responsible for delivering ROI to their members but also acting as a trusted advisor on new opportunities and best practices. We see this first hand and the survivors have learned the lessons of the past well.
Entry Filed under: General, Technology, e-Sourcing Marketplace
March 18th, 2008
David Bush - Iasta
I was sent a link from the doctor, regarding entrepreneurship, as he thought I would find it interesting. And, I did. This blog/article was written by Scott Shane, the A. Malachi Mixon Professor of Entrepreneurial Studies at Case Western Reserve University.
Since almost every other spend management company, eroded its entrepreneur spirit long ago, I thought I would provide commentary on some of the myths that I related to most.
Myth 2: Venture capitalists are a good place to go for start-up money. Not unless you start a computer or biotech company. Computer hardware and software, semiconductors, communication, and biotechnology account for 81 percent of all venture capital dollars, and seventy-two percent of the companies that got VC money over the past fifteen or so years. VCs only fund about 3,000 companies per year and only about one quarter of those companies are in the seed or start-up stage. In fact, the odds that a start-up company will get VC money are about one in 4,000. That’s worse than the odds that you will die from a fall in the shower.
Well, there is a strange convergence here. We are in high tech (which is were the vast majority of VC goes), but, never tried to get any money. I still remember the headlines from SupplierMarket.com (6/20/00 - $581M purchase price, low customer count, only 155 employees when purchased and bleeding money). Who knows what path we would have taken, with different decisions, but its unlikely we would be here today, and even more unlikely we would have hit the lottery like those SM guys did.
Myth 7: The growth of a start-up depends more on an entrepreneur’s talent than on the business he chooses. Sorry to deflate some egos here, but the industry you choose to start your company has a huge effect on the odds that it will grow. Over the past twenty years or so, about 4.2 percent of all start-ups in the computer and office equipment industry made the Inc 500 list of the fastest growing private companies in the U.S. 0.005 percent of start-ups in the hotel and motel industry and 0.007 percent of start-up eating and drinking establishments made the Inc. 500. That means the odds that you will make the Inc 500 are 840 times higher if you start a computer company than if you start a hotel or motel. There is nothing anyone has discovered about the effects of entrepreneurial talent that has a similar magnitude effect on the growth of new businesses.
Ok, glad we did not open a bar. I would be out of business and have lung cancer. I actually do agree though. When you build something that has value to so many, you have slightly more margin for error. Oh, and since we did make that Inc list, I guess we are also in the 90th percentile of start ups in the computer industry.
Myth 10: Starting a business is easy. Actually it isn’t, and most people who begin the process of starting a company fail to get one up and running. Seven years after beginning the process of starting a business, only one-third of people have a new company with positive cash flow greater than the salary and expenses of the owner for more than three consecutive months.
Surprisingly, this is true, even if you are in the right industry at the right time. Look at all the acquisitions that constantly occur through out supply management. They are usually raids on financially distressed companies.
And, if you thought running a business was hard, try writing a daily blog.
Entry Filed under: General, e-Sourcing Marketplace
February 28th, 2008
David Bush - Iasta
There is a very good article on Supply & Demand Chain Exec regarding indirect strategic sourcing. Specifically, the company (Respironics), contracted a very good sourcing advisory firm, Greybeard, to manage some complex categories upfront but ween off the consultants with the lessons learned.
I found this to be an excellent story, because we do the exact same things for many clients.
“in late 2005 Respironics’ procurement team began to ramp up its focus on indirect materials with two goals in mind: putting in place a formal strategic sourcing process for indirects across the company’s U.S. locations and getting greater total value out of its indirect spend. Right away the team confronted two challenges: lack of internal resources and lack of expertise in specific indirect categories.”
Yes, on all fronts!
These are exactly the type of services you should be expecting from your eSourcing provider. We do them and so do many others. The beauty of leveraging the software vendor for this, is their knowledge of the application that will be left behind. Not only are you capturing savings and implementing process, you are also being trained on that process and the specific toolset.
Indirects (especially services) can be some of the more challenging sourcing projects, but also represent large areas of spend. They must be met with a comprehensive plan of action which can be executed and repeated.
Most importantly, think about where you ultimately want to go with an eSourcing app, not just the first 10 reverse auctions. Is there a target savings goal over X months? Is particular category expertise needed? The long standing benefits will come from process improvement and knowledge transfer, when combined with cost reduction.
Entry Filed under: General, Supply Management Best Practices, e-Sourcing Marketplace
February 26th, 2008
Sean Delaney - Iasta UK
In a recent poll for supply management 77% of the respondents were planning to make cuts to their vendor list.
In soccer terms this is the equivalent of a route one i.e., kick the ball as far up the field in the hope that somebody inadvertently nudges it in the right direction and scores a goal. There is not much technique involved but it’s still a goal. However when you try a second time the likelihood of scoring is far less. Sourcing in my opinion is the same, let me explain…..
Global risk factors are no greater than ever before, raw material prices are rising, availability is falling and product life cycles are growing ever shorter.
Procurement should be wary of these factors and in my opinion decisions to reduce the number of suppliers should not be made by simply (as a respondent to this survey suggests) looking at the aggregate spend against the number of suppliers and then picking a number.
I strongly believe — more than ever before — now is the time for a much more measured approach to identifying the optimum number of suppliers. Other factors should be considered:
- Required lead times – do all items need to be delivered at the same time, or are suppliers dictating terms?
- Supplier Sourcing – it’s no longer enough to have two suppliers; we now need to understand the shape of their supply chain, i.e. from where are our suppliers sourcing? Do they have the same source? If so, supply risks are not reduced.
- KPI’s (key performance indicators) – should be constantly measured and automatically collated. These measures should be regularly factored into forward orders and commitment i.e. signs of low OTIF percentages should be tackled immediately and plans executed to reduce risk and maintain continuity.
- Goals of the business (i.e. product life cycles) - How long is a product due to run and what are the forecasts? What is likely to replace existing revenue? What is currently being trialed?
- Customer profiles and spend patterns - For example if customer expenditure patterns are likely to be more price sensitive, then there could be a shift in demand patterns. Therefore reducing commitments on high-value buys will reduce exposure and risks.
I’m sure there are plenty more factors which should be considered but these are the first ones that come to mind.
Basically I think this is no longer just a simple decision and the total cost of ownership is now key. However I can’t see how this can be done without up to date management information and therefore decent spend analysis software which tracks all these factors.
In summary route one i.e. reducing supplier numbers is too risky and is now less likely to reap the rewards of past rationalisation. To mitigate the risks and still deliver benefits buyers need to adopt a more measured approach in much the same way as the most successful Premiership Managers. Real time Spend Management information is the imperative.
Entry Filed under: Analysts/Research, General, Sourcing News, Supply Management Best Practices, Technology, e-Sourcing Marketplace
February 20th, 2008
Sean Delaney - Iasta UK
Well another eWorld (London 12th & 13th Feb) has come and gone but some significant shifts it the market yet again. As always the keynote session was well received and after a year’s absence Chris Sawchuck from Hackett delivered the presentation. Some of the key points were:
- Best in class procurement organisations are costing less to run. The total cost of running the procurement department is falling as a percentage of total revenue. Procurement is being asked to deliver more with the same resources.
- BIC are finding diminishing returns on their sourcing activities and they are starting to hit a wall.
- In order to maintain and improve returns BIC are starting to look at the Total Cost of Ownership – influencing spend decisions earlier.
- However only 33% of world class organisations are actually focusing on Total Cost of Ownership approach – so there is room for growth.
Chris went on to add that although in Procurement has been through 10 great years we are now heading into a perfect storm……
S - Supply Assurance – the need for the right goods in the right place at the right time is going to be an even greater challenge.
T – Talent and technology will continue to be top issues. The lack of talent continues to have detrimental affects on the adoption technology. This has become a worldwide issue.
O – Operational – procurement is still about purchase and payables.
R – Risk and regulation is a growing concern. Supply chain risk factors are multiplying and at the same time regulations are growing.
M – More growth, more innovation greater brand enhancement. CEO’s are tasking procurement to deliver and influence in all these areas.
As you can see from Chris’s analysis not only do we have some difficult economic conditions ahead but Procurement will have a far greater range of challenges to contend with.
There was also a Green tint to the show with exhibitors like Green2020 focusing on carbon footprint reduction and Action Sustainability focus on sustainable procurement.
From a personal perspective the delegates were far more focused on their organisational needs and what eSourcing had to offer them. Spend Analysis has yet some way to go to reach a similar level of understanding.
Overall another great conference and looking forward to September already!
Entry Filed under: Analysts/Research, e-Sourcing Marketplace
February 12th, 2008
David Bush - Iasta
Author’s note: This is a joint effort with Michael Lamoureux.
A lot of vendors these days are claiming to offer SaaS, because that’s the buzzword of the day and people are realizing that unless they are an IT company with their own high reliability, fault-tolerant, data center with redundant Internet connectivity and power providers, it’s usually better to have a technology company manage the software and data center. (And even if they are an IT company with a modern data center, sometimes it’s cheaper to have certain applications hosted and managed by a third party.)
However, just because a vendor offers you an application “on-demand”, this does not mean it’s true “Software as a Service”, or SaaS if you will. If you look beneath the covers, it’s often just a traditional hosted ASP model relabeled as “on-demand” or “SaaS” because either the provider doesn’t know the difference between ASP and true SaaS, or the provider is hoping that you
don’t know and will thus perceive their offering to be better than it really is.
True SaaS requires multi-tenant. To understand this, we’ll review three major advantages of SaaS in detail which you will NOT realize if you just go hosted ASP. (Many of these are described in the wiki paper).
- Instant Deployment
A hosted ASP vendor might be able to get you up fast, but not instantly. A hosted ASP vendor will have to build a new machine, install their software, and put it on their network. If they are really efficient, they will used standard configurations and have a ghost image that they can flash onto a new machine in an hour or two, but this is not instant. And if the network guy is sick that day, it might be a few days before they can get around to the flash and get the new machine tested and in their data center.
A true multi-tenant SaaS offering only requires the creation of a new customer account, and it’s good to go on the current platform with no installs, no customizations, and no new hardware. It should literally take the vendor longer to log the request and collect your information than to make you live.
- Instant Upgrades
A hosted ASP vendor needs to update every customer’s machine to upgrade their offering. If they have 200 customers, they have to do 200 upgrades. Could be a few weeks before you see your upgrade, depending on where you fall on their priority list.
With a true multi-tenant SaaS offering, only the main instance is updated and every customer is updated simultaneously. You see the update as soon as its ready.
- Economies of Scale
The real benefit of SaaS is the considerable cost savings it allows. An ASP provider has to maintain separate hardware for every customer, which, most of the time, won’t even come close to maximum utilization, and has to maintain a large team of network professionals to maintain all those
machines.
A true multi-tenant SaaS application can use heavy duty multi-core servers and support 10, 20, or 100 customers (using an IBM or Sun rack configuration) on a single hardware platform with built in virtualization and fail-over. With only one machine and one software instance to update,
only a small team of network people is required - this represents a considerable salary cost savings that can be passed on to their customers. Furthermore, because hardware only has to be added occasionally, and because virtualization allows processors to be powered down when utilization is low, the vendor that has a true multi-tenant SaaS application also saves on hardware and energy costs, and can pass this savings onto its customers as well.
Furthermore, the following advantages will not be realized to their full potential if you just go with a traditional hosted ASP solution:
- Pay as You Go
The provider will need a substantial set-up fee up front, or will have to jack up your price to cover the set-up costs.
- Single Instance
You’re a large organization that has more users than a large server can handle? Too bad. You’ll find your users split across multiple instances. This will be particularly problematic when one instance fails while another stays up.
- Free Upgrades
Since an ASP provider has to install each patch separately for each customer, you’ll be paying a large maintenance fee, whether you know it or not. (Some providers will hide it in the monthly fee, but you’re still paying it.)
- The customer has the leverage.
Due to the large set-up costs, these providers will insist that you sign long-term hosting contracts. A real SaaS provider will go for a contract as short as three to six months, although you won’t get a discount unless you sign up for at least a year or two.
- Regular Automated Data Backup
An ASP provider will claim to do this … and they will buy a separate backup drive for you machine … and all will seem well until your server fails and you realize that they haven’t tested your backup drive in over 2 months (since it takes them a long time to cycle through the testing
rotation) and the last good backup was a month ago.
- Built for Change
To an ASP provider, change is great … as long as you don’t do it more than once a year. Just trust us on this one.
Plus, as my post co-author pointed out over on his blog, Sourcing Innovation, ASP is just not as green as SaaS.
Entry Filed under: General, Technology, e-Sourcing Marketplace
February 11th, 2008
Todd Epple - Iasta
A recent article popped up in Network World about another vendor in the industry extolling the virtues of “utility computing”.
Perfect Commerce, much to the chagrin of its remaining internal IT staff, is outsourcing all of its datacenter operations to Savvis in a $5 million 3-year contract. When I first read this I was shocked at the price tag, which I am sure has been discounted considerably from Savvis’ list pricing considering the public press release and marketing help that Perfect has given them. Still how could this cost be justified in a company the size of Perfect (150 employees)?!?
Digging deeper into the press release, I have found the reason…
“A couple of years ago, we had between 500 and 600 servers at Perfect Commerce in about 29 different application groups.”
Bingo. Now it all makes sense. They had about four times as many servers as employees! And who knows how many other assets (desktops, laptops, printers, routers, switches, firewalls, etc) the overburdened IT staff was responsible for managing. And 29 “application groups” is an awful lot for a small software company to even have a hope of providing decent customer support.
I am sure the strain of supporting SO MANY legacy systems (40 servers per IT employee!!) that were cobbled together or acquired over the years was causing a lot of stress and strain on the understaffed IT department especially considering the skyrocketing demands (and costs) of compliance/security and higher availability levels. So instead of tackling these problems in-house the decision has been made to throw a lot of money at the problem.
Thankfully, Savvis has the right prescription for this problem: server consolidation and virtualization. This clearly should have been accomplished many years ago and, when completed, will increase the efficiency and manageability of these assets. With the sheer volume of virtualization they will need to do this, it may be a good time to load up on some more VMW or EMC stock while they are down. Another winner in all of this is the environment. 600 servers at 300 watts each consume about 180 kilowatts, or almost $500 per day in electricity not including the extra AC such a datacenter would require. Cutting the number of physical servers by more than half would be good for Perfect’s carbon footprint.
So, to recap, here are the winners and losers:
Winners:
Savvis
EMC and VMW
The Environment
The Economy in Atlanta and D.C.
Losers:
Perfect’s IT Staff
Kansas City Power and Light
The Kansas City Economy
IT Consultants (the article says they were paid $300/HOUR!!)
It is clearly very difficult to have to manage this many legacy systems and products for any company, both from an IT perspective and from a customer service perspective. I’m really not sure where this leaves Perfect’s customers–will the quality of their support improve or not? Will the money have been better spent improving the support or the products versus paying the infrastructure tax of legacy acquisitions? Stay tuned…100% acquisition retention is on the line!
Entry Filed under: General, Technology, e-Sourcing Marketplace
February 8th, 2008
Purchasing Executive - Global 1000
Today, I would like to welcome a guest post from a practitioner in management at a F500 company. It is this person’s first attempt at blogging and I welcome this opportunity to get reactions from people that have seen many situations from front row. Right now, I have made an account for this budding blogger, and in case you are wondering, they do not work at an Iasta client nor have I ever personally met them. Without further ado…and I hope this will not be the last attempt…
It’s recently been rumored that a major consulting firm is bidding to buy a large sourcing software pro. This idea intrigued me because of my exposure to both, but also because it seemed so anathema to what consulting firms are supposed to provide. What is the strategic objective for such an acquisition? Are they trying to get ahead of the curve on the move away from large procurement systems with huge implementation and maintenance burdens?
My experience with large consulting firms (lukewarm at best) has been primarily around the implementation of these comprehensive, integrated procurement systems. So if one hires an external “partner” (the term used for someone you hire to do something you think you can’t do yourself) to provide independent advice on software alternatives and concomitant process improvements, doesn’t this acquisition compromise the very impartiality you should be able to assume in any recommendations they make? The inherent conflict of interest would necessitate a very hard look at the kind of advice provided by consulting partners when they have “skin in the game”, so to speak. I know that they routinely form “alliances” with many software providers, but the appearance of independence from any one of them in particular could be argued because of the sheer number of alliances they seem to have. Outright ownership of any one product is a different kettle of fish.
At the end of the day, most of the time they seem to provide only one solution to all customers, tailored just enough to look new and different. I must believe that any software which they own would be presented as integral to any proposal they make.
On a different note, will this mean that other large consulting firms will follow suit? As with many industries, the “me-too” mentality among them is alive and well, and few could be considered at that point to be truly independent from the product(s) they own.
Entry Filed under: General, e-Sourcing Marketplace
February 5th, 2008
David Bush - Iasta
Our last newsletter was a big hit, I got a lot of positive feedback and messages from people that even said they had forwarded to others they thought would relate to it. Apparently, it struck a cord with a few folks, so I am republishing it now. If you are not subscribed to Iasta Insights, its easy and you can do so here. It is a bi-monthly produced newsletter that takes on supply management challenges in all forms. Amazingly, it just started its fifth year.
Software Acquisitions: Is Wall Street’s Gain Your Loss?
In the past year, we’ve seen a flurry of acquisition activity in the sourcing and procurement software world. Most recent, industry giant Ariba acquired venture-leveraged Procuri. In full disclosure, both vendors are companies we respect and often run into in competitive situations. But while deals like this might be good for the fat cats on Wall Street, are they really good for customers? A recent article in The Wall Street Journal offers a strong perspective which suggests customers should watch their wallet when it comes to mergers and acquisitions their providers engage in.
According to the venerable daily, as “software companies flesh out their integration plans internally, customers on the outside are left with unanswered questions about their future. It often takes years for software makers to integrate all the products they have bought — if they manage to at all — making it hard for customers to decide what to buy in the meantime. Some customers worry about losing negotiating power in the long run as the number of product choices dwindles. And all the deal making can crimp a CIO’s ability to plan, since it’s unclear which software makers will survive.” But perhaps an Oracle / Peoplesoft customer interviewed for the article says it best: “In my experience [following the acquisition], it’s been a dog’s breakfast wrapped in a nice pretty ribbon.”
At Iasta, we’re not fond of serving up dog food. In fact, we’re the only vendor of comparable customer reach in the e-Sourcing world that we know who has been able to grow organically without acquisitions which would threaten our focus or customer service ethos. But perhaps even more important, what you see with Iasta is what you get. Unlike everyone else we know in the space, Iasta has no outside investors. Early on, this constrained our ability to grow quickly, but over the long term, it has – and will continue – to afford us tremendous freedom to make decisions that are right for our customers over the long-run versus what is best for external shareholders looking to make a buck.
In fact, this last point would appear very close to home given the recent Procuri deal. Procuri – like Iasta – was experiencing sustainable market growth before Ariba acquired them, but it was not enough for investors who had complete control of the company (and who made 90+% of the money on the “exit”). According to Gartner Research in 2007:
“Ariba has several decisions to make in the wake of this acquisition, as no major functional gaps in Ariba’s product line are enhanced with Procuri’s offerings. Instead, Ariba will have two product lines with primarily duplicate functionality. Since Procuri’s solution set is built on .NET, and Ariba’s is not, Gartner believes that the Procuri platform solution is less likely to survive during the next two to five years as a separate technology platform.”
Now, Procuri customers face a choice – work with a provider with a questionable commitment to a legacy application, or consider other options. If early customer fall-out is any indication, many are clearly opting for the latter.
At Iasta, we remain 100% committed to putting our customers first rather than doing deals to keep our investors happy, but which will ultimately disappoint those who matter most – you. Whether it’s through e-Sourcing, advanced optimization, or contract management, Iasta is committed to driving innovation, value and customer success first. We wish we could say the same about everyone else, but then again, they’re not providers who boot-strapped their way to success, one customer at a time.
Entry Filed under: General, Technology, e-Sourcing Marketplace
February 1st, 2008
David Bush - Iasta
This post does not need to be very long, I just wanted to point out a nice blog by Sourcing Innovation, which describes the difference between eProcurement and eSourcing. Yes, there is a big difference here, but not every one understands this. To this day, I still get people that go into technology review and market evaluation for eSourcing but reference eProcurement. Michael’s chart is comprehensive, yet simple. As described by the doctor:
“Without procurement, the organization wouldn’t have a large transaction database and extensive visibility into spend, the key to a successful spend analysis effort, which is the first phase of e-Sourcing. And without sourcing, there would be no strategically negotiated contracts to buy against, and procurement managers would be spending willy nilly, making the current level of maverick spending that you have to deal with pale in comparison.”
Thank you, please drive through.
Entry Filed under: General, Technology, e-Sourcing Marketplace
January 29th, 2008
Michael Lamoureux
Purchasing B2B had a good article over the summer called Suppliers Like You Because? Discovering All Your Leverage Points by Terence Lillew that had a list of nine discussion points that should be considered in the development of a cost management strategy for a category.
1. Dollar Volume
Dollar volume is generally the primary leverage point. When a regular order over a period of time is locked in, suppliers can budget resources, plan appropriately and rein in their costs. Thus, you can insist that some of that savings is passed on to you.
2. Size
After dollar volume comes organization size. The larger the organization, and the greater the potential for future business, the greater the discount structure that the supplier can offer.
3. Leadership
The organization’s leader sets the tone for business value. If the leader is respected, and has demonstrated long-term effectiveness, the company can leverage itself into a better position.
4. Business Philosophy
A fair and ethical business philosophy that looks for solutions instead of attaching blame and that continually improves and a philosophy that supports creativity will give the organization a competitive edge in all negotiations.
5. Policies and Process
The company’s purchasing department must be responsible for the policies and processes if they are to leverage their position, and they must be sure to make sure the policies and processes are fair and up-to-date.
6. Early Influencer
A company known as an innovator gains a certain amount of prestige that can be leveraged to improve their position in a negotiation because they will be seen as a company you want to do business with.
7. Benchmarking
A leading organization constantly benchmarks its performance against peers and competitors. Suppliers know that a benchmarking company is often a successful company and may be more inclined to do business with such a company.
8. Buy Locally
Organization’s that buy locally have a natural advantage over those that don’t. A supplier wants to service a local buyer.
9. Payment Cycles
In an industry where most buyers are trying to extend payment cycles, any buyer that can reduce payment cycles is in a strong position to negotiate for additional discounts.
These are all great points. Be sure to think each and every one through before finalizing your negotiation strategy and starting an e-RFX or an e-Auction.
Entry Filed under: General, Supply Management Best Practices, e-Sourcing Marketplace
January 28th, 2008
David Bush - Iasta
There is an economic storm brewing and its called a recession. I believe Zig Ziglar once stated that experts have predicted 36 out of the last 2 recessions. The problem is, that nobody actually knows if we are in a recession until the economy is already pulling out of it. To start, I think it is important to understand some macroeconomic definitions:
Recession: a decline in any country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.
Stagflation: a period with out-of-control price inflation combined with slow-to-no output growth, rising unemployment, and eventually a recession.
Depression: “a recession is when you lose your job; a depression is when I lose mine.” - Newspaper columnist Sidney J. Harris
In all seriousness, we look to be in the middle of a legitimate economic downturn which might, in retrospect, be a significant recession with a dash of inflation to make it really fun. I was discussing this issue with our COO, Jason Treida, who is of the opinion that this should be a very good time to really re-examine the reverse auction strategy and implementation. Basically, the theory goes that suppliers with less than full capacity production or deployment, will be very aggressive to gain/maintain business. In fact, many drop prices without provocation. This makes a lot of sense and the pressures being exerted on every company will force strong resulting pressure on many suppliers in the supply chain. However, it will only work consistently when applied to the proper supply markets which have those prior existing situations.
The global economy is much more complicated to distill into a basic maxim, however. So, I pinged Pierre Mitchell to bring a little class and panache to ESF, a nice change from the beer swilling alehouse that I call home. According to Pierre:
My POV is that it’s not a question that means much because the USD weakness and the rise of commodity prices does not lend itself to using RA’s for leveraged categories – a great strategy when riding deflationary markets – and unfortunately deflation is happening in the consumer markets but is being dampened by commodity prices from the back of the supply chain. Hopefully firms already have LTAs and other hedges in place – if not they need to find other things they bring suppliers than a checkbook. It is however a good opportunity to do better demand management and other broader cost reduction and innovation improvement efforts.
Excellent analysis, as usual. I just hope things do not get as bad as we are hearing the pundits prognosticate, or we may see the practice played out with live ammunition.
Entry Filed under: Analysts/Research, General, Global Supply Issues/Risk, Reverse Auctions, Supply Management Best Practices, e-Sourcing Marketplace
Next Posts
Previous Posts
