[From iSource Business, March 2001] It's their sweet spot. That's how Stephen Healy, GE Corporate's manager of e-procurement with the Corporate Initiatives Group, describes TPN Register's Interactive Catalog Management system which the U.S. multinational conglomerate has installed on top of its Oracle ERP solution. "Oracle is not in the content management business," Healy says bluntly. "TPN Register is."
Don't be misled by this lead. This is not an article about TPN or Oracle or even content management for that matter (although there will be more on that particular subject later).
Any procurement executive in any industry describing any best of breed supply chain software say Blue Martini or Broadvision or i2 Technologies or ClearCross could easily have been substituted. Because, without a doubt, his or her rationale for installing such an application on top of an e-procurement solution would have been the same as Healy's. "It's their sweet spot."
And that is what this article is about e-procurement's missing sweet spots.
Clearly iSource Business is not knocking the intrinsic value of e-procurement. What we are doing, however, is taking off the rose-colored glasses to examine, realistically, what these systems can and can't accomplish for their users at this point.
What They Can Do
Ever since its advent some three years ago, the business case for e-procurement has been unfailingly optimistic. It was said that ROIs will be in the range of 300 percent over the lifetime of a system. Purchase orders that once cost $70 to process will now cost 70 cents. There will be ease of installation and ease of use. There will be reasonable costs, especially when compared with the financial black holes otherwise known as ERP systems. There will be no more maverick purchasing. And, as more companies deploy these systems to procure direct materials and conduct strategic sourcing, e-procurement will be viewed as a tool that is essential to manage a company's supply chain. "The savings, benefits and efficiencies are so great, I tell clients not to waste eight months evaluating the different systems on the market," says Steve Gold, managing director of KPMG's Supply Chain Solutions group. "I tell them to just pick one and get on with savings." What can an e-procurement system do for your company? It would be easier to answer what it can't do, respond e-procurement enthusiasts.
"I was wondering when someone would get around to this question," says Brian Hardacre, CEO of Supply Side Business Solutions, a Chester-based consulting company in Northern England. Hardacre is also a member of the United Kingdom's Chartered Institute of Purchasing and Supply, serving on its E-commerce Working Group and Supply Chain Group.
"The current e-procurement products on the market are great in their functionality. But the fact remains there is much they cannot do, and this is often overlooked by companies that purchase them," he says.
The problem, Hardacre says, is that most e-procurement systems have been based on a B2C model, such as shopping baskets for catalog materials or auctions, "without too much consideration of the differences between B2C and B2B. Because of that, certain functionalities have been ignored," he says.
The limitations most often cited by Hardacre and other consultants include contract management, content management, fulfillment, security, and more advanced reporting features for both suppliers and buyers. Smarter shopping agents would be nice, too. And, to be sure, all of these areas have been addressed by best-of-breed suppliers, making their lack in general e-procurement applications less noticeable.
GE Corporate's Healy, for example, sings the praises of both TPN Register and Oracle and is happy with the process of the company's e-procurement rollout a solution that has been deployed in seven of GE's 11 principle businesses, each of which traditionally have had their own procurement system.
But such patchwork solutions will not satisfy in the long run, many predict.
"What buyers want is an end-to-end solution to address their needs," says Jeff Helfer, CEO of AlphaDog Procurement Management, a provider of outsourced procurement solutions. Some of the bits and pieces are there, he says, such as order initiation "which all of the suppliers on the market handle very well." But other functionalities such as sourcing, more sophisticated analytical capabilities, and payment issues, he says, "still need work."
Not that the e-procurement solution suppliers are content with the status quo. They are more than aware of the limitations of their systems, says Helfer. One only has to count the number and rate of best of breed acquisitions that have been made in this space lately to know e-procurement suppliers are trying to add new functionality as quickly as possible.
"I wouldn't challenge it is not getting better the question is not if but when these systems will be able to meet all of the needs and expectations of their buyers," Helfer says.
"Realistically it could be anywhere from five to even 10 years to have these functionalities in one system one year if you believe the industry hype," Helfer jokes.
But be it one year or 10, the reality is companies are implementing e-procurement systems now and want results from their systems now. The best way to accomplish that is to examine the not-so-sweet spots of the e-procurement suppliers and work with and around them. "The vision is there," says Helfer. "At the end of the day you are constantly wishing you had their next release because these suppliers are clearly on to these issues."
The following are some e-procurement points that consultants and other industry experts believe could stand just a little improvement.
1. Catalog Maintenance
This is a primary concern for buyers of e-procurement systems, even those that implement the systems that offer a full set of catalog mapping and management tools, says Derek Keefer, a research analyst with SPEX, a division of META Group Inc. based in Reston, Va.
"If the buyer controls catalog maintenance, updating the catalogs is very time consuming and means a continuous back and forth with the suppliers," he says. "If it is the responsibility of the supplier, it is unlikely the catalogs will be able to perform complex, cross-supplier searches." Consistency of supplier data is another worry to consider, he says especially coding. One supplier, for example, could code his black product as "BL," while another could the same black product as "BK."
Catalog factories a solution to which many procurement professionals turn are indeed an option, Keefer acknowledges, mentioning such suppliers as Aspect Development (acquired recently by i2) and Harbinger (recently acquired by Peregrine). But "there is still no clear assurance that getting the specific suppliers into the managed catalog will not be time consuming in terms of having complete integration," he wrote in a report on the subject.
No matter which route a company chooses to take (outsource, rely on a procurement supplier's stable of suppliers, or do it in-house) an important question to ask, Keefer advises is, "How long will it take for key suppliers to convert their catalogs to that particular format?" "The suppliers make this sound easy, but it is not," he concludes.
2. Systems Integration
"Like most packaged software, the e-procurement packages are very good at what they do by themselves," says David Smiley, director of product strategy at SAGA SOFTWARE, a Reston, Va.-based provider of enterprise application integration solutions. "But they are rarely easily integrated into other systems."
So companies must be aware of the impending difficulties before they begin any integration project, or, for that matter, before they purchase any e-procurement package. As any survivor from the integration wars of the ERP era can tell you, a costly systems integration project can double or triple the original cost of a software package.
In particular, says Keefer "integration with financial tools and the software that manages financial systems can be a problem." ERPs, he says, which normally handle such back-end financial activities like accounts payables and general ledger systems "require a great deal of information in a specific format." e-Procurement suppliers will tell potential clients that their systems can be integrated into the major systems such as SAP, and that will be true, Keefer says. "But companies should be aware that the integration will not be seamless and may not be easy, depending on how deep that integration will go."
Another "glaring omission" Keefer points out is the inability of many e-procurement systems to be integrated into asset management systems. "Users find it very difficult to take purchasing information and update it automatically in an asset management system," he says. The main reason, he acknowledges, why e-procurement suppliers have probably not yet offered this particular functionality is that "there is not much of a demand for it. Asset management is not as popular as some systems." But it is one that is growing in popularity, he says, and sooner or later suppliers will have to work towards a solution in this area.
For Gold, the real discussion is about added functionality and whether it is built or acquired.
"It's about which model of product development is the better one. A supplier can acquire functionality like Ariba did when it acquired SupplierMarket.com, or it can build it out organically, like Oracle is doing."
Both approaches have their benefits and drawbacks. Acquiring technology means getting that particular capability to a customer that much faster. It also means it won't be as well integrated with the rest of the solution. Organic growth is slower, but bound to be better incorporated in the core platform.
"Everyone is seeing the same forest, just attacking it in different ways," Gold says. "There are no clear, winning solutions here yet."
Meanwhile, as e-procurement takes a greater starring role in a company's overall supply chain management systems, the difficulties of systems integration become more glaring, Smiley says.
"Look at RosettaNet. If a company wants to play by these standards it will find itself receiving a RFQ that it will have to respond to within a few hours. [RosettaNet is a non-profit consortium that is working to develop e-business process standards between supply chain partners on a global basis. One of the process standards limits the amount of time that can lapse after a RFQ is received]. If your systems are not integrated, you may not be able to respond in time."
3. Punch Out
The key to success for any procurement initiative is collaboration. Buyers and suppliers need real-time information from each other to best leverage supply chain efficiencies and strategic sourcing agreements. Ideally companies need to be able to leave or punch out of their own systems and access a supplier's site for product information. Suppliers, for their part, need to be able to "punch in" a buyer's site for demand forecasting scenarios. The punch out/punch in function is also referred to as "round trip" in some systems.
"The ability to be able to 'punch out' of a system means a requisitioner could go to a specific category in a supplier's site and grab the necessary information from that site to include in his requisition," explains Helfer.
To a certain extent this functionality is available in certain systems. Ariba, for example, allows supplier-managed content to be pulled into Ariba purchase requisitions.
But with this capability fully developed companies would not only be able to manage catalog content far more easily, but also be able to better negotiate prices, Helfer says.
e-Procurement suppliers he says "are working on this but are not truly there yet."
4. Security
"Too many procurement professionals underestimate the importance of security," says Eric Elfman, president and CEO of Houston-based DataCert.com, which provides an e-business service for the secure exchange of information between trading partners and applications, concentrating mainly in the legal documents space. "Unfortunately the same is true of e-procurement suppliers." Together that means an almost frightening lack of even rudimentary safeguards.
Granted not all data is as hypersensitive as that contained in a legal document. But on the other hand, competitive information can often be gleaned from the buying and sourcing habits of a company.
Some of the basic encryption technologies companies should incorporate in the e-procurement program (indeed all of their supply chain management software programs) are public key cryptography and secure sockets layer (SSL), both of which have proven to be secure for Internet use. Another promising technology, SPEX's Keefer reports, is SET or Secure Electronic Transaction, which was developed by VISA and MasterCard. Its purpose is to make secure payments over the Internet.
"This is something all buyers of e-procurement systems should demand of their suppliers," Elfman says. "This technology can be expensive to buy on a single user basis. It is only commoditized [and hence cost affordable] when other suppliers bundle it into existing software."
5. Reporting
Reporting is an area in which "there are opportunities for improvement," as Bonnie Kanne, a partner in Arthur Andersen's E-procurement Solutions Group, diplomatically puts it. "Most of the packages offer good, standard reporting capabilities. But the clients I speak with want more."
For example, she says, most of the packages offer customized reporting, "but it is usually at either the individual level or the global level. One area in which the people are looking for more functionality is in that space in the middle reporting at the departmental level or in other groupings or subsets of a company."
Actually Kanne thinks this issue won't be too hard for suppliers to address. Indeed many do offer this sort of functionality. But her vision grows even more grandiose, stopping at nothing short of complete visibility throughout the supply chain.
"Everything from integration of information throughout a company and then outside of its four walls to seeing exactly where a product is in transit from a supplier, to understanding what the total landed cost of a product that is sourced from overseas will be," she says.
The latter, in fact, is another category of "sweet spot" best of breed suppliers. Companies such as ClearCross can quickly tally for a company the total cost of a foreign sourced product including transport costs, duties, customs, duty drawbacks in a few keystrokes. "What most people are looking for in e-procurement is cost savings," Kanne says. "If the total cost of a foreign sourced good can be considered during the decision making, then the company is that much ahead on maintaining and controlling its costs."
6. Collaboration
This is how KPMG's Gold defines heaven for some procurement professionals: "If you are my supplier and you are connected to my manufacturing department, I could look into your production line and align my production department with yours. That is Nirvana."
In some quarters, this is also what is called collaboration. "e-Procurement suppliers do not handle collaboration well and that's unfortunate because that is where the biggest savings can be made," says Dan Quinn, senior manager in the McLean, Va.-based offices of Cap Gemini Ernst & Young, a global e-business consultancy.
To be able to provide this sort of functionality, suppliers such as Ariba are forming relationships with best of breed providers such as Descartes and Matrix One, says Gold. But even these new associations will not achieve what Quinn and others describe as the next generation of collaboration.
"Take as an example a company that supplies control valves, which basically is a number of different components incorporated into product," Quinn says. "The company that makes these valves has an employee named Joe who has been putting together these custom designed valves for 40 years. He takes the parameters from the customer and designs a valve from standard parts to meet the customer's needs."
Basically what Quinn and other collaborative enthusiasts have in mind is a program that can automate Joe's brain. "Customers could write in the details about their needs, and the front-end of the program would have all of Joe's experience imbedded in the system. Through a series of simple questions, the program would take a customer through a decision tree process to get the right valve."
No one has seen collaboration reach this point yet though, Gold agrees. "A lot of people have seen the vision, but it is an incredibly complex solution to pull off.
7. Completing the Transaction
Undoubtedly, e-procurement suppliers handle order initiation well. But that level of competency has largely dissipated by the end of the transaction cycle. Fulfillment and payment capabilities are lacking in many e-procurement systems, not to mention the Net marketplaces that are available today. "A lot of people are trying to figure out the transaction piece of the cycle," says Steve Hornyak, chief strategy officer of Clarus Corporation. "Most people are taking that piece offline and have accounts receivables or accounts payables clerks to do it for them."
Order fulfillment, as well, remains largely the purview of third party providers. A recent study by DHL Worldwide Express showed that some 40 percent of companies surveyed viewed fulfillment problems as a barrier to e-commerce. (See "Fulfillment: Get What's Yours" on page 116 of this issue.)
"Anything having to do with fulfillment from inventory visibility and planning capacity to logistics and physical movement of goods is still in its infancy as far as an e-procurement solution goes," says Greg Runyan, senior analyst of B2B Commerce and Applications at the Yankee Group. "Actually fulfilling the order has taken a back seat to establishing an online presence," he says.
The good news is a whole class of best of breed suppliers, as well as Net marketplaces, have formed in recent months to address these last pieces of e-procurement transactions. Also, many of the traditional e-procurement suppliers such as Clarus are starting to add functionality in these areas. Another example is PeopleSoft, which recently announced the development of PeopleSoft MarketPay, a pure Internet financial settlement system built for B2B trading exchanges. However, the greatest strides have been made lately in the Net marketplaces. ec-Finance, a New York-based dot-com focused on international trade products, has launched an online letter of credit product specifically for the B2B community called FastLC. And CommFin, another New York-based dot-com, has launched an Internet trade finance portal developed specifically for Net markets. Buyers are able to negotiate payment and credit terms with suppliers, minimize paperwork and access a broader base of financing. Sellers can access off balance sheet financing at competitive rates. Already, several global banks have aligned themselves with the venture.
Net marketplaces have also rapidly moved to handle the physical movement of goods purchased. GoCargo.com, NTE.com, Tradiant.com and Nistevo.com are only a few examples of such sites. Here too, however, functionality varies. Some of these sites can integrate into a user's back-end system, and some cannot. Also, out of all the best of breed categories there are, this particular space can boast of the most sophisticated and long-lived suppliers including such notable products as i2, Manugistics, Descartes and IMI.
Don't be misled by this lead. This is not an article about TPN or Oracle or even content management for that matter (although there will be more on that particular subject later).
Any procurement executive in any industry describing any best of breed supply chain software say Blue Martini or Broadvision or i2 Technologies or ClearCross could easily have been substituted. Because, without a doubt, his or her rationale for installing such an application on top of an e-procurement solution would have been the same as Healy's. "It's their sweet spot."
And that is what this article is about e-procurement's missing sweet spots.
Clearly iSource Business is not knocking the intrinsic value of e-procurement. What we are doing, however, is taking off the rose-colored glasses to examine, realistically, what these systems can and can't accomplish for their users at this point.
What They Can Do
Ever since its advent some three years ago, the business case for e-procurement has been unfailingly optimistic. It was said that ROIs will be in the range of 300 percent over the lifetime of a system. Purchase orders that once cost $70 to process will now cost 70 cents. There will be ease of installation and ease of use. There will be reasonable costs, especially when compared with the financial black holes otherwise known as ERP systems. There will be no more maverick purchasing. And, as more companies deploy these systems to procure direct materials and conduct strategic sourcing, e-procurement will be viewed as a tool that is essential to manage a company's supply chain. "The savings, benefits and efficiencies are so great, I tell clients not to waste eight months evaluating the different systems on the market," says Steve Gold, managing director of KPMG's Supply Chain Solutions group. "I tell them to just pick one and get on with savings." What can an e-procurement system do for your company? It would be easier to answer what it can't do, respond e-procurement enthusiasts.
"I was wondering when someone would get around to this question," says Brian Hardacre, CEO of Supply Side Business Solutions, a Chester-based consulting company in Northern England. Hardacre is also a member of the United Kingdom's Chartered Institute of Purchasing and Supply, serving on its E-commerce Working Group and Supply Chain Group.
"The current e-procurement products on the market are great in their functionality. But the fact remains there is much they cannot do, and this is often overlooked by companies that purchase them," he says.
The problem, Hardacre says, is that most e-procurement systems have been based on a B2C model, such as shopping baskets for catalog materials or auctions, "without too much consideration of the differences between B2C and B2B. Because of that, certain functionalities have been ignored," he says.
The limitations most often cited by Hardacre and other consultants include contract management, content management, fulfillment, security, and more advanced reporting features for both suppliers and buyers. Smarter shopping agents would be nice, too. And, to be sure, all of these areas have been addressed by best-of-breed suppliers, making their lack in general e-procurement applications less noticeable.
GE Corporate's Healy, for example, sings the praises of both TPN Register and Oracle and is happy with the process of the company's e-procurement rollout a solution that has been deployed in seven of GE's 11 principle businesses, each of which traditionally have had their own procurement system.
But such patchwork solutions will not satisfy in the long run, many predict.
"What buyers want is an end-to-end solution to address their needs," says Jeff Helfer, CEO of AlphaDog Procurement Management, a provider of outsourced procurement solutions. Some of the bits and pieces are there, he says, such as order initiation "which all of the suppliers on the market handle very well." But other functionalities such as sourcing, more sophisticated analytical capabilities, and payment issues, he says, "still need work."
Not that the e-procurement solution suppliers are content with the status quo. They are more than aware of the limitations of their systems, says Helfer. One only has to count the number and rate of best of breed acquisitions that have been made in this space lately to know e-procurement suppliers are trying to add new functionality as quickly as possible.
"I wouldn't challenge it is not getting better the question is not if but when these systems will be able to meet all of the needs and expectations of their buyers," Helfer says.
"Realistically it could be anywhere from five to even 10 years to have these functionalities in one system one year if you believe the industry hype," Helfer jokes.
But be it one year or 10, the reality is companies are implementing e-procurement systems now and want results from their systems now. The best way to accomplish that is to examine the not-so-sweet spots of the e-procurement suppliers and work with and around them. "The vision is there," says Helfer. "At the end of the day you are constantly wishing you had their next release because these suppliers are clearly on to these issues."
The following are some e-procurement points that consultants and other industry experts believe could stand just a little improvement.
1. Catalog Maintenance
This is a primary concern for buyers of e-procurement systems, even those that implement the systems that offer a full set of catalog mapping and management tools, says Derek Keefer, a research analyst with SPEX, a division of META Group Inc. based in Reston, Va.
"If the buyer controls catalog maintenance, updating the catalogs is very time consuming and means a continuous back and forth with the suppliers," he says. "If it is the responsibility of the supplier, it is unlikely the catalogs will be able to perform complex, cross-supplier searches." Consistency of supplier data is another worry to consider, he says especially coding. One supplier, for example, could code his black product as "BL," while another could the same black product as "BK."
Catalog factories a solution to which many procurement professionals turn are indeed an option, Keefer acknowledges, mentioning such suppliers as Aspect Development (acquired recently by i2) and Harbinger (recently acquired by Peregrine). But "there is still no clear assurance that getting the specific suppliers into the managed catalog will not be time consuming in terms of having complete integration," he wrote in a report on the subject.
No matter which route a company chooses to take (outsource, rely on a procurement supplier's stable of suppliers, or do it in-house) an important question to ask, Keefer advises is, "How long will it take for key suppliers to convert their catalogs to that particular format?" "The suppliers make this sound easy, but it is not," he concludes.
2. Systems Integration
"Like most packaged software, the e-procurement packages are very good at what they do by themselves," says David Smiley, director of product strategy at SAGA SOFTWARE, a Reston, Va.-based provider of enterprise application integration solutions. "But they are rarely easily integrated into other systems."
So companies must be aware of the impending difficulties before they begin any integration project, or, for that matter, before they purchase any e-procurement package. As any survivor from the integration wars of the ERP era can tell you, a costly systems integration project can double or triple the original cost of a software package.
In particular, says Keefer "integration with financial tools and the software that manages financial systems can be a problem." ERPs, he says, which normally handle such back-end financial activities like accounts payables and general ledger systems "require a great deal of information in a specific format." e-Procurement suppliers will tell potential clients that their systems can be integrated into the major systems such as SAP, and that will be true, Keefer says. "But companies should be aware that the integration will not be seamless and may not be easy, depending on how deep that integration will go."
Another "glaring omission" Keefer points out is the inability of many e-procurement systems to be integrated into asset management systems. "Users find it very difficult to take purchasing information and update it automatically in an asset management system," he says. The main reason, he acknowledges, why e-procurement suppliers have probably not yet offered this particular functionality is that "there is not much of a demand for it. Asset management is not as popular as some systems." But it is one that is growing in popularity, he says, and sooner or later suppliers will have to work towards a solution in this area.
For Gold, the real discussion is about added functionality and whether it is built or acquired.
"It's about which model of product development is the better one. A supplier can acquire functionality like Ariba did when it acquired SupplierMarket.com, or it can build it out organically, like Oracle is doing."
Both approaches have their benefits and drawbacks. Acquiring technology means getting that particular capability to a customer that much faster. It also means it won't be as well integrated with the rest of the solution. Organic growth is slower, but bound to be better incorporated in the core platform.
"Everyone is seeing the same forest, just attacking it in different ways," Gold says. "There are no clear, winning solutions here yet."
Meanwhile, as e-procurement takes a greater starring role in a company's overall supply chain management systems, the difficulties of systems integration become more glaring, Smiley says.
"Look at RosettaNet. If a company wants to play by these standards it will find itself receiving a RFQ that it will have to respond to within a few hours. [RosettaNet is a non-profit consortium that is working to develop e-business process standards between supply chain partners on a global basis. One of the process standards limits the amount of time that can lapse after a RFQ is received]. If your systems are not integrated, you may not be able to respond in time."
3. Punch Out
The key to success for any procurement initiative is collaboration. Buyers and suppliers need real-time information from each other to best leverage supply chain efficiencies and strategic sourcing agreements. Ideally companies need to be able to leave or punch out of their own systems and access a supplier's site for product information. Suppliers, for their part, need to be able to "punch in" a buyer's site for demand forecasting scenarios. The punch out/punch in function is also referred to as "round trip" in some systems.
"The ability to be able to 'punch out' of a system means a requisitioner could go to a specific category in a supplier's site and grab the necessary information from that site to include in his requisition," explains Helfer.
To a certain extent this functionality is available in certain systems. Ariba, for example, allows supplier-managed content to be pulled into Ariba purchase requisitions.
But with this capability fully developed companies would not only be able to manage catalog content far more easily, but also be able to better negotiate prices, Helfer says.
e-Procurement suppliers he says "are working on this but are not truly there yet."
4. Security
"Too many procurement professionals underestimate the importance of security," says Eric Elfman, president and CEO of Houston-based DataCert.com, which provides an e-business service for the secure exchange of information between trading partners and applications, concentrating mainly in the legal documents space. "Unfortunately the same is true of e-procurement suppliers." Together that means an almost frightening lack of even rudimentary safeguards.
Granted not all data is as hypersensitive as that contained in a legal document. But on the other hand, competitive information can often be gleaned from the buying and sourcing habits of a company.
Some of the basic encryption technologies companies should incorporate in the e-procurement program (indeed all of their supply chain management software programs) are public key cryptography and secure sockets layer (SSL), both of which have proven to be secure for Internet use. Another promising technology, SPEX's Keefer reports, is SET or Secure Electronic Transaction, which was developed by VISA and MasterCard. Its purpose is to make secure payments over the Internet.
"This is something all buyers of e-procurement systems should demand of their suppliers," Elfman says. "This technology can be expensive to buy on a single user basis. It is only commoditized [and hence cost affordable] when other suppliers bundle it into existing software."
5. Reporting
Reporting is an area in which "there are opportunities for improvement," as Bonnie Kanne, a partner in Arthur Andersen's E-procurement Solutions Group, diplomatically puts it. "Most of the packages offer good, standard reporting capabilities. But the clients I speak with want more."
For example, she says, most of the packages offer customized reporting, "but it is usually at either the individual level or the global level. One area in which the people are looking for more functionality is in that space in the middle reporting at the departmental level or in other groupings or subsets of a company."
Actually Kanne thinks this issue won't be too hard for suppliers to address. Indeed many do offer this sort of functionality. But her vision grows even more grandiose, stopping at nothing short of complete visibility throughout the supply chain.
"Everything from integration of information throughout a company and then outside of its four walls to seeing exactly where a product is in transit from a supplier, to understanding what the total landed cost of a product that is sourced from overseas will be," she says.
The latter, in fact, is another category of "sweet spot" best of breed suppliers. Companies such as ClearCross can quickly tally for a company the total cost of a foreign sourced product including transport costs, duties, customs, duty drawbacks in a few keystrokes. "What most people are looking for in e-procurement is cost savings," Kanne says. "If the total cost of a foreign sourced good can be considered during the decision making, then the company is that much ahead on maintaining and controlling its costs."
6. Collaboration
This is how KPMG's Gold defines heaven for some procurement professionals: "If you are my supplier and you are connected to my manufacturing department, I could look into your production line and align my production department with yours. That is Nirvana."
In some quarters, this is also what is called collaboration. "e-Procurement suppliers do not handle collaboration well and that's unfortunate because that is where the biggest savings can be made," says Dan Quinn, senior manager in the McLean, Va.-based offices of Cap Gemini Ernst & Young, a global e-business consultancy.
To be able to provide this sort of functionality, suppliers such as Ariba are forming relationships with best of breed providers such as Descartes and Matrix One, says Gold. But even these new associations will not achieve what Quinn and others describe as the next generation of collaboration.
"Take as an example a company that supplies control valves, which basically is a number of different components incorporated into product," Quinn says. "The company that makes these valves has an employee named Joe who has been putting together these custom designed valves for 40 years. He takes the parameters from the customer and designs a valve from standard parts to meet the customer's needs."
Basically what Quinn and other collaborative enthusiasts have in mind is a program that can automate Joe's brain. "Customers could write in the details about their needs, and the front-end of the program would have all of Joe's experience imbedded in the system. Through a series of simple questions, the program would take a customer through a decision tree process to get the right valve."
No one has seen collaboration reach this point yet though, Gold agrees. "A lot of people have seen the vision, but it is an incredibly complex solution to pull off.
7. Completing the Transaction
Undoubtedly, e-procurement suppliers handle order initiation well. But that level of competency has largely dissipated by the end of the transaction cycle. Fulfillment and payment capabilities are lacking in many e-procurement systems, not to mention the Net marketplaces that are available today. "A lot of people are trying to figure out the transaction piece of the cycle," says Steve Hornyak, chief strategy officer of Clarus Corporation. "Most people are taking that piece offline and have accounts receivables or accounts payables clerks to do it for them."
Order fulfillment, as well, remains largely the purview of third party providers. A recent study by DHL Worldwide Express showed that some 40 percent of companies surveyed viewed fulfillment problems as a barrier to e-commerce. (See "Fulfillment: Get What's Yours" on page 116 of this issue.)
"Anything having to do with fulfillment from inventory visibility and planning capacity to logistics and physical movement of goods is still in its infancy as far as an e-procurement solution goes," says Greg Runyan, senior analyst of B2B Commerce and Applications at the Yankee Group. "Actually fulfilling the order has taken a back seat to establishing an online presence," he says.
The good news is a whole class of best of breed suppliers, as well as Net marketplaces, have formed in recent months to address these last pieces of e-procurement transactions. Also, many of the traditional e-procurement suppliers such as Clarus are starting to add functionality in these areas. Another example is PeopleSoft, which recently announced the development of PeopleSoft MarketPay, a pure Internet financial settlement system built for B2B trading exchanges. However, the greatest strides have been made lately in the Net marketplaces. ec-Finance, a New York-based dot-com focused on international trade products, has launched an online letter of credit product specifically for the B2B community called FastLC. And CommFin, another New York-based dot-com, has launched an Internet trade finance portal developed specifically for Net markets. Buyers are able to negotiate payment and credit terms with suppliers, minimize paperwork and access a broader base of financing. Sellers can access off balance sheet financing at competitive rates. Already, several global banks have aligned themselves with the venture.
Net marketplaces have also rapidly moved to handle the physical movement of goods purchased. GoCargo.com, NTE.com, Tradiant.com and Nistevo.com are only a few examples of such sites. Here too, however, functionality varies. Some of these sites can integrate into a user's back-end system, and some cannot. Also, out of all the best of breed categories there are, this particular space can boast of the most sophisticated and long-lived suppliers including such notable products as i2, Manugistics, Descartes and IMI.
