Get More Out of Your Supply Chain in 2003

The course is not uncharted. Whirlpool did it with IBM Global Services. Real estate giant Cushman & Wakefield did it with solution provider FacilityPro. And the Pathmark supermarket chain did it with ISV Intersource. In Whirlpool's case, for example, IBM Global Services created a business-to-business trading portal for the $10.5 billion manufacturer's channel partners and integrated it with SAP to better track order status. The portal lets Whirlpool's midtier partners,which comprise 25 percent of the total partner base and account for 10 percent of revenue,to order online. Typically, such partners relied on phone or fax to do business with Whirlpool. According to IBM Global Services, 100 percent ROI was achieved in eight months.

Today, procurement solutions not only reduce the burden on central purchasing agents, but also create opportunities for increasing top-line revenue growth by leveraging the expertise of an organization's skilled employees. In addition, procurement solutions can help organizations generate returns by transforming the trading environment from an adversarial relationship to an environment in which buyers and sellers actively communicate preferences, requirements and available resources.

How do VARs get into e-procurement? A good first step is to understand what procurement technology should include.

What To Look For

With an expanding list of procurement requirements that can vary widely across users, there is no one-size-fits-all procurement solution. However, any procurement solution should include the following core capabilities:

Administration: A set of user hierarchies, content controls and business rules for managing spending.

Process management: Workflow tools for managing the creation,and routing of,requisitions.

Order management: Capabilities for creating and consolidating purchase orders and tracking orders through fulfillment.

Catalog management: Tools for the creation of electronic product catalogs, including catalogs that are accessed and controlled by the buyer; content is delivered to the buyer from suppliers, and tools allow greater control of content by the supplier through catalog sites hosted by the supplier or third party.

Sourcing: Basic tools for allowing buyers to set up reverse auctions and to generate and distribute requests for proposals (RFPs) to multiple suppliers over the Internet.

In addition, there are a number of advanced capabilities. Those include:

Advanced workflow: Beyond core workflow capabilities, such as requisition routing, order creation, order management and process control, some procurement solutions provide advanced workflow functionality. The solution may include universal workflow capabilities that can be used to manage multiple applications, with procurement as one part of an overall process.

In addition, extended workflow capabilities expose workflow functionality to trading partners and suppliers,key to supporting collaboration involving the sharing of processes and tasks. Finally, a number of vendors, particularly those in the asset-management space, utilize workflow to trigger a wider range of automation, tying processes to policy rules to involve whole families of interrelated activities.

Catalog organization: Because organizations do not know of all their potential suppliers, the primary challenge of catalogs has been to identify new sources of supply. To meet this need, many vendors provide extensive "supplier networks",online sites that buying organizations can use as a vehicle for hosting catalog information, as well as soliciting responses from the buyers' trading partners.

Sourcing supply: Sourcing solutions are tools that benefit both buyers and sellers. The most sophisticated sourcing tools allow buyers to evaluate and weigh a broad range of attributes not related to price, such as service levels, delivery options and service capabilities for organizations to tie in with other planning activities. Ultimately, these same systems track and monitor both buyer and supplier performance, considering relationship terms and metrics.

Contract management: Contract-management tools are designed to ensure cost savings within ongoing trading relationships. Contracts extend beyond pricing agreements to specify items such as delivery requirements, terms of acceptance, exception resolution and remedies. Aside from providing tools for the creation of contract terms, contract-management functions create visibility over performance history and quantification of deal terms to assist in the refinement of these relationships.

What the Vendors Offer

A number of different vendors offer procurement solutions today. From a functionality standpoint, these systems can be differentiated based on their historic strengths and current application focus.

For example, for organizations with traditional procurement needs (such as a set of spending controls and process-automation for indirect materials), Ariba and Commerce One provide strong backgrounds in managing spending, establishing a system of hierarchies and supporting order processing. Ariba has traditionally focused on establishing enterprisewide solutions that typically involve comprehensive changes to the underlying procurement processes themselves,an approach that requires longer implementation times, but promises deeper benefits.

With e-commerce backgrounds, Clarus and iPlanet (a division of Sun) provide billing and settlement services that fill a critical gap not addressed by most other procurement solutions in the transaction cycle. Clarus offers an intuitive, easy-to-use solution that is particularly well-suited for rapid returns.

ERP vendors have been the traditional favorites for technology designed to deliver back-office efficiencies. SAP and PeopleSoft have incorporated leading-edge decision logic, analytics and sourcing capabilities, supporting direct materials purchasing and complementing existing back-end systems. But the advantages of using a single-vendor ERP solution over a procurement solution have been mitigated as leading procurement vendors have developed integration with key business applications and business processes across the transaction life cycle. Furthermore, traditional procurement vendors, particularly Ariba and Commerce One, have developed complex sourcing capabilities suited to direct materials purchases and have a broad range of capabilities to support supplier-relationship management (SRM).

Specialized sourcing applications can be used for setting up auctions, automating RFP creation or vetting suppliers for a quicker ROI. With its pending agreement to acquire the assets of Las Vegas-based PurchasePro (a hosted procurement solution), Perfect Commerce seeks to make savings from sourcing events accessible to a broader range of organizations through deployment in a hosted environment. Clarus, a solution provider that's particularly suited for mid-enterprise customers, has incorporated robust sourcing capabilities into its product and is making a concerted effort to support direct material purchasing through an SRM suite in its forthcoming release. FreeMarkets provides strong sourcing capabilities coupled with the organization's vertical expertise.

With an eye on the bigger picture, supply-chain and asset-management vendors offer a solution breadth that extends beyond servicing the procurement transaction. From a supply-chain heritage, i2 and Manugistics view procurement as a critical element in optimizing operations and integrating purchasing with planning activities. With both vendors making strides in augmenting their order-processing capabilities, i2 has taken the lead in adopting procurement and catalog capabilities through various acquisitions. Those vendors, however, offer a solution breadth that may exceed the requirements of organizations simply looking for a tool that can manage spending.

MRO Software and Peregrine Systems are addressing the fundamental issue of asset management, enriching the procurement space with a holistic view of asset ownership. Viewing procurement as a critical, but initial, stage in the life cycle of asset ownership, such solutions offer a greater depth of information in catalogs and extended decision support not typically available in standalone procurement products. For example, employees can make decisions based on information relating to service histories, repair schedules and asset configurations. In addition, they can tie purchasing to other activities, such as the tracking and placement of assets. It is this convergence between purchasing and underlying business processes that represents the future of procurement applications.

Doculabs ([email protected]), a Chicago-based research and consulting firm that helps organizations plan for, select and optimize technologies for their business strategies.