[From iSource Business, May 2001] When it comes time to selecting a supply chain application a process that, let's face it, is a continuous ordeal given the ever-shortening product development cycles the selection of suppliers and products can seem mind boggling.
For procurement managers, however, the selection process can be mercifully brief, assuming a brand name is part of the selection criteria. (If not, get ready to consider an intimidating number of e-procurement packages currently on the market). However, if brand name is a selection criteria (and a case can certainly be made for including the top names on your short list), that means the choice boils down to Ariba or Commerce One.
Basically, as far as quality and functionality go, there is not that much difference between Commerce One or Ariba, says Diane Boothroyd, a principal with North Highland Inc., a national business and technology-consulting firm headquartered in Atlanta. "They have very similar functionality. Each has its good points and bad points." Their major differences, she says, "are in how they make money and how they approach clients and partners."
Commerce One, she says, "is going after independent exchanges, making money as a percentage of transactions. For its part, Ariba is targeting more horizontal marketplaces, making money through purchases of their software and by providing an on-ramp to their marketplaces."
Ariba might be perceived as more popular, she says, because corporations tend to gravitate toward that model. "Companies are more used to purchasing software and not sharing their revenues," she says. And because these models are still relatively new, a lot of companies are unsure of how much profit they would be giving up, should they opt for a revenue-sharing model. "Ariba's way has much less risk involved."
Boothroyd has done a client analysis between the two suppliers and has come up with some minor differences that might matter to companies.
First of all, Ariba is stronger in catalog management, she believes, whereas Commerce One was initially built for more of an Maintenance, Repair and Operation (MRO) consumer-oriented client. "For procurement managers, Commerce One would be easier to use if the system were primarily intended for finished goods. Ariba is better-suited for indirect purchases of raw goods." Again, that is not to say either system can't handle the other function, she says.
Finally, both suppliers rely on partners i2 Technologies in Ariba's case and SAP in Commerce One's for the supply chain piece, she says. "What is interesting is that Commerce One and SAP are rewriting software together now, so companies can more easily do a mix-and-match between the two packages. i2 and Ariba are not working at the same level, however." There has been some speculation, she adds, that "the partnership may not be around forever. i2 is starting to go into areas where Ariba already is active."
While Boothroyd makes these delineations clear enough, many companies may find it preferable to bring in an outsider to help them make the final decision. For one reason, a consultant is less likely to be "wowed by the gizmos" as Linda Swerling, an operations consultant with Level II Solutions, a Brookline, Mass.-based IT firm, puts it. For another, choosing a software package can be a full-time, albeit temporary, job. And hardly any procurement professional these days has enough slack in his or her daily schedule to devote a month or two or four to such an activity.
But whether you have outsourced the selection process or completed it in-house, don't entirely dismiss the suppliers that were your second or even third choice.
"Don't ever whittle the decision down to just one supplier, until the contract has been signed," says Robert Novick, also a principal with North Highland Inc. "It leaves you no room to conduct negotiations."
"Negotiate what?" you may ask.
While selecting the correct system is of primary importance, there is one final step in the software selection process that is important. And that is ...
Negotiating a Price
Oh yes, generic conversations of price have taken place with rough estimates bandied about that might include incidentals of training or upgrades all based on the list price, of course. But talk of a specific price or license fee for your company, along with other financial items in a contract? Nada.
It's at this stage that too many managers, most of whom consider it a point of honor to search for the best fit for their company, become Stepford-like yes-men and -women, automatically submitting the listed price to the budgeting or accounting divisions.
Although it's hardly common knowledge, unlike buying Windows 2000 at a local Office Depot, "prices for almost any system or software are completely negotiable," Novick says. In fact, some tech consultants liken the price negotiation for an application to buying a new car from a dealership, but with vastly higher stakes.
In particular, say consultants, it's the larger companies that are more likely to be overcharged, especially if a supplier might think deep pockets are involved or the project team is not well focused and up on market trends or prices. A more common scenario, however, is a company that automatically pays list price without asking for a discount. Some companies may ask for a 5 percent discount, but analysts suggest going for 20 percent or more. Services are also considered to be up for grabs in the negotiation process.
"I have seen companies ask for, and get, software installation included in the price," Novick says. "It's not something a lot of companies have the nerve to ask. But usually suppliers' selling points include a promise of easy installation. I say to that, 'If it's so easy to put in, you come and put it in for me.'"
Novick is not talking about integration. "They won't configure the software for you for free no matter how hard you negotiate," he says. "But just getting the thing out of the box, that doesn't take them that long to do. They just don't like to do it."
They Want You
If you can make the supplier want you for a client, you are likely to get a much better price. For example, if you have a well-known brand name the supplier might want to be able to tout you to the media as a "success story," with your permission. Or it might want to break into your particular market sector or region of the country.
Novick, for example, says he once helped a client negotiate a "super deep discount" when the company offered to be its poster child for the southeast region. "They wanted to build clientele in that area and in that industry. So we got their best people and ensured they wouldn't switch resources in the middle of the project. In return they would be able to send prospective clients or partners to look at their system."
It's possible to cut deals with even the largest of suppliers, although an Ariba may presumably balk more at certain requests than a smaller supplier.
But even an Ariba can be sweet-talked into concessions.
That is what happened with OfficeTempo, a Boston based dot-com that aggregates office supplies and services for small businesses. "We found that small businesses could not command prices for these things so we came up with a collaborative model," says Kit Manning, vice president of online services for OfficeTempo. "But we needed a good procurement platform."
After a selection process, Manning decided upon the Ariba Marketplace Network Edition (AMNE), a relatively new Application Service Provider (ASP) network and marketplace, which is hosted by Ariba and designed specifically for small companies. Overall, Manning was pleased with her choice, but she did want some tweaking of the system, such as the ability to complete requisition and invoices in a certain way, more sophisticated punch-out ability, search, payment method selection at the marketplace level, and some user interface issues. Some of these she got and some she didn't.
It is no accident that Manning got her concessions through an Ariba ASP. Because the technology and industry are still considered new, some feel that ASPs are more inclined to negotiate with clients on terms and conditions.
"Let the ASP know what is in it for them," advises Kathleen Allen, co-author of eBusiness Technology Kit for Dummies, and director of the University of Southern California's Center for Technology Commercialization. "If they see they have a vested interest in your future they will give you better service." Even showing them a business plan "wouldn't hurt" she says, as long as the proprietary information is not included. "At worst they can give you ideas of how to improve certain processes."
OfficeTempo was able to request certain functions "because we were one of the early adopters, and it gave us a certain leverage in the relationship," Manning says. Also, she adds, most of the other AMNE users were banks, "so they were very happy to have us for the variety."
Besides added functionality and price discounts, Novick has compiled a list of points to try to include in a contract.
- Request that the supplier identify the application suite (financial, distribution, manufacturing, etc.) and each application that falls under it. For example, there may exist approximately eight applications under manufacturing but the client only requires one. Make sure this list of all named applications is attached to the contract. Identify what the additional user cost is.
- Establish what percentage of the cost is maintenance. Ensure that this is computed on the current price instead of floating with the annual increase.
- Write into the contract that you (the client) must approve each person before he or she is brought on board. Additionally, the supplier is not allowed to swap a person once he or she has been agreed upon.
- Place a cap on the maintenance percentage.
- Understand the current consulting rate and get a discount. Have these rates fixed for the length of the project.
- Confirm that software installation is included in the price.
- Hold the retainer until the software is implemented (ask for 20 percent).
- Defer payment until you see some benefit. The supplier will typically want one amount due at signing, and another amount due 30 days into the project. Deferring payment will keep them interested in doing a good job. Also, "seeing some benefits" will create a discussion over what that means.
- Assume the project is split into three phases: Phase 1 consists of design and set-up and will require consulting from the supplier. Designate two people (one financial and one distribution, for example) and make them available two days per week for this phase. Phase 2 is conversion and programming. This will require the use of programmers and perhaps some consulting, but less than what Phase 1 will require. Phrase 3 is implementation support for when the system has gone live. Make these three separate contracts, each requiring approval.