Meeting the Direct Procurement Challenge

AMR: Hosted supply chain services can accelerate move to private trading exchange

Tempe, AZ  January 10, 2002  Companies looking to move their direct procurement processes to a private trading exchange should consider a hosted supply chain service as one means to accelerate the transition, according to a report released this week by technology consultancy AMR Research.

"For most manufacturers, direct procurement represents not just the greater portion of overall spending, but also the greater portion of process management headaches," Pierre Mitchell, a research director at Boston-based AMR, wrote in the report, entitled "For Direct Materials Procurement, Use Hosted Supply Chain Services as an Accelerator to the PTX."

That's because the lack of effective system-to-system connections between companies and their supply base forces buyers and planners to spend inordinate amounts of time expediting documents to suppliers and "firefighting" rather than actually planning or collaborating with the supply base.

A private trading exchange (PTX) could ameliorate some of those headaches by automating routine buyer-supplier interactions and allowing the purchasing department to spend more time working on supplier relationships. However, disparate internal systems and processes among the business units within companies make it difficult for manufacturers to migrate their direct procurement onto a PTX. Moreover, "the problem is compounded by the urgency to transcend transaction automation toward broader information-sharing and collaboration," Mitchell wrote.

The analyst asserts that this need for greater collaboration with the supply base is spurring the development of hosted supply chain (HSC) services that allow both for more rapid connectivity with trading partners and for a higher degree of supply chain planning than is possible from technologies that merely automate transaction processing and document exchange.

Mitchell writes that a variety of solution providers are moving to offer HSC services, ranging from companies involved in electronic data interchange (EDI) and hosted integration to those that previously provided portal tools and supply chain event management. Direct procurement solution providers such as SupplyWorks, existing HSC providers such as Eventra and RiverOne (formerly Efinity), and companies offering PTX software are also getting in on the act.

The analyst recommends that companies engaging an HSC service not forget to factor in a "soft" return on investment as purchasing staff are freed from mundane paper-shuffling to work more closely with the supply base. Companies must also get their own house in order, Mitchell advised. "If you do nothing else, get the business units together to aggregate requirements: process requirements for shared services applications, technology approaches for standardized architectures and detailed technology requirements for shared services infrastructure," he wrote.

AMR offers other recommendations for getting the most out of HSC services, including doing any necessary data transformation internally to make it easier to bring the services in-house, taking advantage of current EDI connections between legacy systems and ensuring that a cross-functional team is involved in any implementation.