Europeans Turning to "Expert-led" Category Sourcing

Greater-than-expected cost savings prompting many companies to expand use of spend management solutions, target new geographies, Verticalnet says

Greater-than-expected cost savings prompting many companies to expand use of spend management solutions, target new geographies, Verticalnet says

Malvern, PA — June 26, 2006 — Businesses in Europe increasingly are turning to "expert-led" category sourcing to help them achieve cost savings, and they are incorporating new geographies into their spend management efforts as cost reduction results have turned out to be greater than previously expected, according to supply management solution provider Verticalnet.

Verticalnet is touting the expansion of its European business as an increasing number of companies in the region adopt spend management applications to support cost savings initiatives. The company said that it has seen significant transformation in its European business over the past several quarters. Key trends have included increases in new customers, broadened indirect channels focused on reselling both software and services, and increasing levels of adoption and savings achieved by customers leveraging its supply management solutions.

Since the merger of Verticalnet and Digital Union, a U.K. provider of auction and procurement solutions, in July 2005, Verticalnet said it has fielded an expanded team for both the U.K. and European markets focused on sales, services and continued software development. "We are very pleased with our European progress and with the success that Verticalnet and Digital Union have achieved since the merger," said Paddy Lawton, president of Verticalnet Europe. "The market is quickly shifting toward a European view of sourcing and procurement, and we are in the right place with the right team and with the right product to take advantage of market trends."

The second quarter of 2006 has seen Verticalnet sign three new software customers within Europe, including licenses for its XE Negotiation Manager and XE Procurement Manager. These new customers include a major U.K. retailer, a global food services company and a large professional services organization.

Greater Savings Potential Seen

Managed e-sourcing and auction events year to date are currently at 87 percent of total 2005 levels, suggesting that events for 2006 will likely more than double versus 2005, according to the solution provider. Savings from such events have averaged 21 percent across a range of direct, indirect, and services categories, Verticalnet said.

In fact, the solution provider is asserting that, despite prior perspectives that the European market may be less receptive to emerging e-sourcing negotiation techniques, the results to date suggest that European savings opportunities may exceed those experienced in the United States through the use of competitive bidding techniques.

Companies in particular are seeing the benefit of "expert-led" optimization-focused category sourcing in complex categories such as pan-European freight, where savings achieved through such techniques can exceed benefits achieved using traditional methods or self-service tools, according to Verticalnet.

European Trends

As Verticalnet continues to expand its base of customers within Europe, a number of clear trends are emerging within and across the Verticalnet customer base. While some of these trends mirror trends experienced with in the United States, a number of trends are specifically European in nature.

These trends include advanced negotiation usage, with European customers increasingly shifting beyond auction-based negotiation for indirect categories to more advanced negotiation techniques, resulting in allocated awards or optimized solutions. This trend is specifically relevant when customers are sourcing aggregated spend across multiple countries and are seeking to award suppliers by regions. In a recent pan-European transportation event Verticalnet said it supported a customer's goal of awarding 2000 shipping lanes, accepting bids from over 300 suppliers across 20 countries.

In addition, spend visibility appears to be driving European procurement, with the function evolving towards a center-led model and spend analysis being viewed as the critical enabler by providing visibility and control to centralized procurement. Regional scale is being leveraged, and regional control of suppliers and buying organizations is being managed and monitored through a repeatable spend analysis process.

Expanding European Operations

Further, procurement organizations are expanding the definition of European operations to include Russia, the Middle East and South Africa. These new markets and their unique characteristics are now being incorporated into spend analysis rollouts as well as complex category sourcing engagements. Not only are organizations expanding their management of operations into these regions, they are also fast becoming the source of supply in addition to the Far East.

This shift in European supply markets drives a different set of language requirements for technology and for customer support than traditional U.S. sources. Verticalnet said its XE Spend Manager is increasingly leveraged by European customers and divisions of U.S. companies given the solution's ability to address multiple languages and currencies. Recent implementations have involved data in over 20 different languages, including Czech, Turkish, Swedish and Kazakh.

Finally, Verticalnet said that, in sourcing, software isn't enough. European customers are requiring services support for training, event support and spend analysis. For companies with beachheads in Europe, the lack of local services organization with product and solution training can prove to be not only a pitfall but a missed opportunity. Verticalnet said its acquisition of Digital Union and the expansion of Verticalnet's European services capabilities through this acquisition have proven to be a key selling point versus other U.S.-based rivals highlighted by a number of new customer wins.

"The ability to capture spend intelligence for our European, Middle Eastern and African operations and the ability to rapidly convert insight into savings through online negotiation are critical components of our procurement transformation process" said Philippe Agostini, sourcing director for JohnsonDiversey. "Verticalnet's ability to service both Europe and North America has provided us with the resources and support we need to be successful in this transformation."

Agostini concluded: "The rollout of our new sourcing process in Europe will be a key cost-savings driver for JohnsonDiversey, and with Verticalnet's assistance we are realizing value sooner than later."

Additional Articles of Interest

— What are the skill sets that will catapult your supply management group to its peak performance? For a guide to help unlock their potential, read "Building a Better Supply Chain Professional" in the April/May 2006 issue of Supply & Demand Chain Executive.

— What do CEOs want from their supply chains, and is Supply Chain delivering? Read more in "The Supply Chain Disconnect," the Executive Memo column in the April/May 2006 issue of Supply & Demand Chain Executive.