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.


The Players

The big players are easy to spot. Ariba, FreeMarkets and the big three ERP suppliers command nearly half of the sourcing and procurement market. And, according to AMR Research, a market populated by more than 100 suppliers, the top five suppliers comprise 48 percent of the overall market. "While ERP suppliers are generally favored by chief information officers looking to reduce IT complexity, Ariba and FreeMarkets will continue to be favorites of chief financial officers and chief purchasing officers — particularly in large firms with heterogeneous back-office environments. For the rest of the market, high growth (more than 20 percent) is coming from e-sourcing suite suppliers, sourcing services suppliers, contract management suppliers and business intelligence suppliers."

AMR Research goes further in assessing the market with the following inputs: Consolidation took its toll and will continue through the rest of this year with niche reverse auction tools being the first to go. Perfect Commerce bought MaterialNet and PurchasePro (which, in turn, bought Baybuilders). Moai merged with Medebiz, and Procuri's traction in selling its hosted, self-service e-sourcing suite makes it a ripe candidate for strategic moves. e-Procurement supplier Clarus became worth more dead than alive, so it sold off its technology to Epicor. eScout bought Commerce One's trading business, CommerceOne.Net.

And if that wasn't enough to digest, in the direct procurement space AMR Research reminds us that BlackHog turned to bacon, Eventra is on the blocks, GXS was purchased by Francisco Partners, and many hosted integration firms are similarly targets to more successful Internet-based electronic data interchange (EDI) and supplier connectivity firms like SPS Commerce or EC Outlook.

In the contract management area, I-many acquired Menerva, and e-sourcing suite supplier B2eMarkets acquired Diligent. The popularity of contract management with users and the number of tiny suppliers will certainly lead to continued acquisitions.

In the content management area, PeopleSoft acquired Cohera; CardoNet and Poet are struggling; and Requisite, SAQQARA and ePlus are battling it out tooth and nail for market share. Lastly, industry-specific suppliers will need to stay lean and mean to survive, and category-specific suppliers like elance for services procurement or Noosh for print procurement will engage in a similar struggle before being acquired by larger suppliers.

Set to Lead

So we must all beg the question: Who is set to lead in the sourcing application space?

For Metcalfe, when you look at the consulting piece you can still acknowledge FreeMarkets though they will struggle with software-focused suppliers that began with a self-serve tool. He also suggests that we watch for PeopleSoft and SAP to make more of an impact. He has an overall positive outlook for Ariba, highlighting their fantastic customer base.

Derome suggests that companies that don't already have a leadership position will continue to be dependant on their vertical market strategy also noting that Ariba has done a lot to extend its products footprints.

Finally, the analysts pose the big consolidation question as it relates to the larger e-sourcing suites from software suppliers such as B2eMarkets, Emptoris, Frictionless Commerce and MindFlow. To them, MindFlow looks very attractive to ERP or supply chain firms, with some currency to play with. The other three continue to innovate and lead the way in terms of automating global sourcing programs led by advanced corporations. They will eventually need to be acquired or, if going it alone, dive heavily both into verticals and/or merge with some services-oriented suppliers, the analysts suggest.

What to Watch For

What can the buyer or user of the technology expect in the next six months? Plenty, says Metcalfe: "I would focus on the application providers' spend analysis capabilities. At the end of the day, if you cannot break down your spend, you won't know what's going out.

In addition, Metcalfe advises users to watch for sourcing applications that have improved integration with PLM applications. "This is so important to the entire mix of requirements of an organization's supply and demand chain requirements. The only provider doing a real good job of this is MatrixOne."

The Yankee Group's Derome also suggests that users can expect more capabilities from the spend management area in the sourcing arsenal. "As standards mature (UCCNET, CIDX, RosettaNet), take advantage of those data standards to move data to maximize your demand chain. Supplier score-carding and supplier performance management have some interesting technology developments going on, too."

Mitchell speaks to the market in general. "Look for even more consolidation. There are still too many technology suppliers in this area. Consolidation is good for a young market, it builds good choices."

"And don't forget to watch for business intelligence — analytics — to be a long-term trend to watch," says Mitchell. "You have lots of good choices in the tool set."

For those companies that want to close their performance gaps in sourcing and supply management, just throwing any type of software application at their needs is clearly not the solution. Instead, more pragmatic, services-intensive, value-focused, benchmarked, best-practices-guided, and industry-specific implementation of technology — conducted in lock-step with process and organizational change — will lead to a slower, albeit lasting, growth in the procurement and sourcing market during 2002 to 2007, suggests AMR Research. So, yes, it's time to buy the right system to support your organization's strategic sourcing needs. But the time-honored adage still stands: buy smart.

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