The No-value Zone

e-Sourcing vendors provide plenty of demand and little real value, claims analyst firm

Cambridge, MA  October 14, 2002  B2B Analysts, an industry analyst firm, has released a report on what it calls the "new" strategic sourcing space. The firm interviewed 43 suppliers, their partners, venture capitalists, chief information officers and purchasing experts as sources for the report.

The firm said that, to most observers, "sourcing technology" has become synonymous with reverse auctions. David Dobrin, lead author of the report, argued, "Procurement people recognize that reverse auctions have a place, but their overriding aim is to get a better deal for their companies along all the dimensions of cost  quality and reliability matter just as much as price."

The variety of technologies that promise them help is complex. The report divides up sourcing technologies into eight categories: strategy, analytics, RFx (i.e., request for proposal, request for quote, etc.), award, contract, monitoring, and, of course, reverse auction.

"An even more important segmentation," stated Dobrin, "is by spend category. Most companies buy assets, real estate, legal services, temporary services and freight, as well as the famous indirect and direct materials. Indeed, the typical company divides spend into anywhere from 100 or more spend categories. And each category has a different buying process, which requires different techniques and technologies."

Among the suppliers that have escaped the no-value zone are those that concentrate on a single spend category, according to the report. "[They] are able to return real value quickly to their customers through a combination of focus, services and technology," said Dobrin.

The few suppliers that so far are providing real value are those that are as much service and intellectual capital companies as they are software companies. According to the report, solutions in this space must aim at helping procurement departments buy smarter. "And you can't do that simply with technology," said Dobrin. "In the report, we mention the 12 deadly sins of software companies that have entered the space. No. 3 is saying, 'We're just a technology company.'"

According to the report, the enterprise resource planning (ERP) suppliers are far from making a showing in the space. Sourcing professionals have not gotten much value from ERP installations thus far, and they take a skeptical attitude toward what the applications can do now. "So far, the products announced by these suppliers, are pure technologies," claimed Dobrin, "and that isn't enough. You need technology, intellectual capital, and rapid, provable benefit."

Also included in the report is a grading system for suppliers. However, most suppliers' marks were low given the newness of the space and the immaturity of the products.