Global Enabled Supply and Demand Chain Series: Sourcing

Cost control has companies re-evaluating their commitment to sourcing apps, especially as best-in-class firms are driving high returns from the technology.


Cost control has companies re-evaluating their commitment to sourcing apps, especially as best-in-class firms are driving high returns from the technology.

Sourcing. While still somewhat tight, the overall sourcing arena is beginning to be a good market in which to be selling software, and it's a good market in which to be buying software. Now doesn't that sound good?

In its June 2003 report titled "The Procurement Applications and Sourcing," AMR Research says, "Macroeconomic malaise and the bells tolling for some best-of-breed suppliers dragged the procurement and sourcing market down 9.5 percent in 2002, but high returns on investment (ROIs) and the trend toward integrated supply management support will fuel 10 percent growth during 2002 to 2007."

Take a reflective walk down memory lane and chances are you'll bump into the historical markers that remind you of the B2B Internet craze of 1998 to 2000. e-Procurement and trading exchanges were the two hottest topics, and suppliers like Ariba and Commerce One were at the top of their game.

Then came 2001.

The procurement and sourcing space became a tragic play of small suppliers struggling to survive while users hunkered down to digest the applications acquired in the B2B buying binge.

In its report, AMR Research says, "The overall procurement and sourcing market grew only 19 percent to $1.9 billion in 2001 (a far cry from the 162 percent growth posted in the wonder year of 2000), and 2002 has put its stamp on the market that finally fell back to earth, shrinking nearly 10 percent."

But why is AMR predicting 10 percent growth during 2002 to 2007? Says the Boston-based research firm, "The bottom line is that even though this young technology market experienced a boom-and-bust cycle, economic markets are generally efficient, and the triple-digit ROIs of procurement and sourcing projects — especially as they broaden to higher-impact supply management processes — will continue to fuel the market."

David Metcalfe, Ph.D., research director for United Kingdom-based Forrester Research, says that if you look at the predicted growth of the sourcing market globally, you should divide North American and Europe, since the number are quite different. "The consulting part of the sourcing business in the United States is not growing more than 10 percent," he says. "But in Europe, consulting will grow 20 percent. U.S. software licenses [in sourcing] will probably be broadly comparable with the consulting growth in the United States."

The Yankee Group out of Boston has an even more aggressive growth estimate. They expect the sourcing and procurement application market to grow by 25 percent in 2004 compared to 2003. "We've discovered significant pent-up demand for leading-edge enterprise software that interacts with customer and supplier," says Jon Derome, senior analyst for The Yankee Group. "Once budgetary resources are available, then customer- and supplier-facing solutions will be a priority."

As AMR suggests, from 1998 to 2000 the business community witnessed "high innovation and competition that forced large technology suppliers to pay attention" to the sourcing and procurement application market. Their report goes on to state, "It also forced users to take a very hard look at their organizational, process and technology architecturesparticularly when best-in-class firms were getting a disproportionately high return from these technologies compared to those that sought the system as a quick-fix solution to their supply management ills."

Considering all these factors, users have a lot to look forward to in the coming months from the sourcing application market.

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