The Source of E-Procurement Opportunity

While both strategic sourcing and e-procurement solutions can impact buy-side commerce processes, sourcing should be viewed as a precursor to (not synonymous with) procurement activities.
Posted December 12, 2000
By

Kip Martin


(Page 1 of 2)

www.metagroup.com

META Trend: Indirect (commodity and MRO) and direct procurement providers (applications and marketplaces) will add services (asset management, review/approval, resource scheduling, supplier/component rationalization, analytics, etc.) but focus tactically through 2000, improving integration by 2001. By 2001/02, auctions and dynamic catalogs will be commonplace, along with additional new/used product services (finance, logistics, assessment, etc.). By 2003, marketplace transaction revenues will be 10x software license revenues.

As Global 2000 (G2000) organizations increasingly advance their electronic business solutions, the majority are either considering or have implemented buy-side (i.e., e-procurement) electronic commerce (EC) initiatives. META Group notes e-business solution vendors, consultants, and systems integrators (SIs) looking to assist organizations with their e-procurement projects have recently begun to use the term "strategic sourcing" in association with marketing, promotional, and product/service description materials. While this represents a logical evolution of the buy-side EC market, we find on further investigation, many are incorrectly using strategic sourcing as a synonym of e-procurement, creating considerable fear, uncertainty, and doubt within the market.

E-procurement solutions, focusing on the improvement of purchasing processes, have been increasingly addressed by vendors (e.g., Ariba Inc., Commerce One Inc., Clarus Products International, L.L.C., Remedy Corp., Metiom Inc.) since the late 1990s. Solutions have evolved from simple catalog access tools to encompass the requisition-to-order process, primarily focusing on indirect (i.e., not components of finished goods) commodity (i.e., low degree of uncertainty) goods (e.g., office supplies, toilet paper). The benefits of automating this process have been well documented (see sidebar E-Procurement Benefits), and the solutions will continue to mature to include inbound logistics, inventory systems integration, reconciliation, payment, and more advanced analytical capabilities (2002).

Prior to requisitioning, however, organizations must determine what specific products/services they need to procure, from which supplier(s), for what price, etc. - the strategic sourcing of goods and services. While a natural predecessor to e-procurement, the automation of sourcing processes is complex, and will be commonly integrated with e-procurement solutions by 2004. Solutions, while offered as incremental evolutions of traditional e-procurement solutions, will more typically be created from best-of-breed components from various arenas:

  • Asset management (e.g., Peregrine Systems Inc., Remedy)

  • Payment (e.g., Visa International, American Express Company, Bank of America Corp.)

  • Invoicing/bill presentment (e.g., BlueGill - now CheckFree Corp.)

  • Industry Net markets (e.g., Pantellos Group, Enporion Inc. for Utilities)

    E-Procurement Benefits
    In a recent survey concerning e-procurement, META Group found that organizations across the annual revenue spectrum received or anticipated benefits from e-procurement solutions in three distinct categories:
  • Correct buying: Seventy-two percent indicated improvements in purchasing the correct product/service from the correct supplier, at the correct price, at the correct time, and with the correct attributes
  • Cheaper buying: Fifty-eight percent indicated a reduction in the resources (i.e., time, capital, personnel) consumed in processing/approving requisitions
  • Working capital reduction: Seventy-three percent indicated the elimination of excess inventories or procurement from existing stocks
  • But we expect larger e-procurement (e.g., Ariba, Commerce One) vendors to pursue increasing partnerships/acquisitions across these solution markets as they seek to expand their current offerings beyond current configurations. For G2000 user organizations, strategic sourcing will represent a significant challenge on both technical and operational/tactical fronts. User organizations will have to wrestle with a range of issues:

  • Understanding suppliers

  • Understanding spending

  • Understanding benefits and issues associated with categories of spending

  • Lots of analytics

  • Supplier and contract management

  • Component management within manufacturing environments

  • Determination of what supply categories are commodities for a particular organization (e.g., flour, toilet paper, pens)

    The anticipated need for such solutions and the associated flurry of end-user organization strategic sourcing solution efforts will increasingly attract new market entrants with new (or threatened) offerings (e.g., B2eMarkets Inc., META Group's joint venture with Ajunto Inc.). While initially associated with more basic indirect commodity e-procurement solutions, they will evolve to encompass the sourcing of more complex and uncertain products (e.g., configurable products, collaborative products, engineered products, and services [generally]).


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