Tempe, AZ December 13, 2001 Two more challengers stepped into the increasingly crowded e-sourcing ring this week with the launch of Commerce One Source and Oracle Sourcing, raising anew the question of the best strategy for a buying organization to pursue in choosing an e-sourcing solution provider.
e-Marketplace/e-procurement platform provider Commerce One and enterprise software company Oracle join a host of current e-sourcing players, including B2eMarkets, Diligent Software Systems (formerly Webango), FreeMarkets, Frictionless Commerce, MaterialNet, Procuri and PurchasePro.
Not to mention Commerce One competitor Ariba, which launched its own sourcing solution in September; i2, which bought out RightWorks last year; ICG Commerce, which rolled out its RealSource offering in October; and the likes of Healy Hudson, Tigris and EDS' A.T. Kearney (which recently took its e-sourcing efforts in-house with the reintegration of eBreviate earlier this month).
Did we mention Emptoris, Clarus, Perfect Commerce or TRADEC?
The reason for all this activity is clear: with companies looking to boost bottom lines in a stagnant sales environment, procurement organizations are looking for tools to increase the efficiency of the sourcing process and drive down costs for direct and indirect materials, as well as services. And e-sourcing can be just what the doctor ordered, according to a November report from technology consultancy AMR Research. AMR found that e-sourcing pilot programs had products that promised 10 to 20 percent material cost reductions, 45 to 65 percent reductions in sourcing cycle times and improved process discipline.
At the same time, in the current market organizations are reluctant to put all their sourcing eggs in one basket, so they are "dipping their toes" in the e-sourcing pool by running pilot programs with one or more solution providers, according to Pierre Mitchell, research director at AMR.
The problem is that true strategic sourcing, e-enabled or not, is a complex, cross-functional effort. Mitchell argued that at this time, enterprises simply are not willing to invest the time or resources in an untested technology that is going to require tearing down the barriers of functional silos. This reduces the effectiveness of e-sourcing solutions, but it has the advantage of being quick and easy, and it can produce the results cited above. "Given the current economy, people are using the technology in a very localized way to try to improve spending categories that are addressable and that don't require a huge amount of cross-functional collaboration," Mitchell said.
With many enterprises unwilling to commit to major investments in e-sourcing, the AMR analyst says that solution providers in this area are in "survival mode" and are willing to run a three- to six-month pilot with a customer in the hopes of converting to a long-term enterprise licensing agreement. "It's a bit of a Catch 22," Mitchell said. "Users are not committing because there are so many choices, and the market is not rapidly growing enough because people are stuck in this pilot mode."
Clearly that did not stop Commerce One and Oracle from joining the fray.
Commerce One Source, currently in Beta release, automates the sourcing process and allows purchasers to manage the online negotiation process with suppliers. Commerce One gained fame as an e-procurement platform provider but has recently positioned itself as a provider of private trading exchanges (PTX), so it is not surprising that the company is emphasizing the integration of its e-sourcing offering with its existing e-commerce solution.
"Commerce One Source combines new, competitively distinct sourcing capabilities with Commerce One's proven e-commerce platform," said Dennis Jones, president and chief operating officer for Commerce One, in a statement on the launch. "This combination enables enterprises to extend their visibility and control over the entire strategic sourcing process, while connecting silos of information and action both inside the enterprise and with trading partners anywhere, anytime."
Source is currently in Beta use at five Commerce One customers, with general release later this month.
AMR Research, in a review of the new Commerce One offering, said that while it currently lacks some key functionality, as well as integration with a reverse auction tool acquired from CommerceBid, Source promises an attractive business process management component in a future release as part of the full Commerce One 5.0 PTX platform, due out next year.
Commerce One itself is emphasizing both Source's business process engine and features that promote buyer-supplier collaboration. In an interview, Scott Wilkerson, director of product marketing at Commerce One, said Source provides sophisticated business process tools that let a company create reusable business processes. So buyers sourcing in a particular category can create a workflow template that others in the organization can follow at a later date.
The buyer-supplier collaboration tools allow companies to work together with their suppliers to reduce costs throughout the supply chain, according to Commerce One's director of solutions strategy, Frank Engelhardt. The tools allow suppliers to work within their own organizations, for example, in responding to a request for proposal (RFP).
With all the solutions already on the market, why is Commerce One bringing out its offering now? "We've spent a lot of time understanding business requirements around exactly what people need for Web-enabled sourcing," said Wilkerson, "and we think that we've really raised the bar in terms of buyer-supplier collaboration."
For its part, Oracle said its sourcing solution identifies sourcing opportunities, allows for real-time online negotiations with suppliers and ultimately lowers purchasing costs. "Oracle supports the complete identification-to-contract business process which locates sourcing opportunities, gathers requirements, qualifies suppliers, manages the negotiation event, makes award decisions and monitors contracts on an ongoing basis," the company said in a statement. The Oracle solution is available as a software package or as an online service.
Kevin Miller, a vice president at Oracle, said the new solution "can be integrated with procurement, planning and design execution systems to produce results that go directly to the bottom line."
Oracle said its customer Todo1 Mercado Digital recently conducted its first negotiation across five financial entities in Latin America for the purchase of about 2 million credit and debit cards. Juan Jose Bermudez, marketplace director at Todo1 Services, reported savings of greater than 40 percent, or $300,000, by using the solution's negotiation capabilities.
With a glut of solution providers rushing to get on the e-sourcing bandwagon, what's a buying organization to do?
First, AMR recommends that organizations begin by focusing on the front-end of strategic sourcing by getting a handle on their total spend by commodity, part and location. "Choose software or service providers with the proven capability to help you analyze and anticipate your spending across commodities," AMR writes.
Slow-moving organizations, those with a "homogenous back-office environment," companies that are managed from the top-down and companies that want to minimize integration might do well to go with a sourcing solution from a traditional enterprise resource planning (ERP) supplier. But other companies should consider one of the specialized e-sourcing providers for a quick pilot project that can produce quick results and, eventually, turn e-sourcing into a self-financing initiative that can be extended across an enterprise. "Certainly the ERP suppliers are going to be a long-term threat in this market, but companies that want to take the money on the table are clearly not going to wait for their ERP provider," Mitchell concludes.