Strategic Sourcing Projected for Growth

AMR Research: market to reach $1.8 billion by 2006

Boston  July 30, 2002  An in-depth study released this week by AMR Research projects that the strategic sourcing market will grow from $350 million in 2001 to approximately $1.8 billion by 2006, representing a five-year compound annual growth rate (CAGR) of 40 percent, driven by the maturing software and a growing awareness of the compelling ROI.

The report, entitled "E-Sourcing: ROI Tastes Great, Applications Less Filling," is based on an evaluation of the top 17 suppliers in the space against 200 functional requirements and more than 80 interviews with current adopters of the technology.

AMR said the clear return on investment and projected growth of the strategic sourcing market has fueled a product influx from software and service suppliers, but none so far have a complete footprint to support cross-commodity requirements of large, diversified and complex corporations.

The report stated that e-sourcing continues to deliver order-of-magnitude ROI. Interviewees have saved 10 to 15 percent in direct goods and 20 to 25 percent in indirect goods and services while slashing sourcing cycle times. Overall, AMR Research recommends companies do something now, since "speed-to-category" ranks supreme.

They added that functional maturity for leading suppliers is at least 18 months away, and while no supplier evaluated has both deep application functionality and sourcing services expertise, there is plenty of functionality to get started. However, AMR stated that "best-of-breed suppliers will continue their functional lead. While enterprise resource planning (ERP) suppliers will inevitably catch up, users should not placidly wait, but rather take specific actions to gain the "long-term quick-fix."

The report evaluated suppliers on six major functional requirement categories: analysis and planning; direct materials sourcing; RFx; bidding events; bid analysis, negotiation, contract management; and supplier/sourcing performance management. While suppliers posted an anemic average score of 2.1 (based on a 0 to 5 scale), many innovative technology components adopted by leading-edge users are fundamentally changing traditional strategic sourcing practices.

The report also outlines how users are currently implementing e-sourcing to support global sourcing programs, including best practices and lessons learned on how to adopt this technology from both an organizational and architectural standpoint.

Pierre Mitchell, vice president and research fellow, AMR Research said that, for buyers, whether the goal is reducing total cost or time-to-market, the automation of corporate sourcing efforts has become a pervasive strategic initiative. He explained that although buyers are realizing a quick, massive ROI from event-based e-sourcing tools, their desire for deeper support of strategic sourcing processes is encountering hurdles that are common to a new applications market, like fewer than a few hundred installations, incomplete functionality and many small niche suppliers.