Supplier Relationship Management

Sector Outlook, Fourth Quarter, 2003

The SRM market is the most immature of all the major markets, and there is a simple reason for this: purchasing is rarely seen as a strategic activity.

We're not saying this is how it should be. Profits, after all, consist of inflow - outflow. In a stable company, the simplest way of increasing profits is to reduce outflow. So we think purchasing is often strategic.

But as long as corporate executives disagree with us, in many companies, a huge amount of the overall effort in purchasing will be spent on faxing POs, checking up on deliveries, and trying vainly to track overall spending.

On the one hand, this makes the area a rich one for applications, because there is so much one can do. On the other hand, it has also been a graveyard for application companies who overestimated the purchasing department's willingness to spend money. Does anyone remember Commerce One?

Most companies already have a system that can generate POs, manage invoices, and write checks. To do more in the area, there seem to be four reasonable approaches, each of which requires a technology enabler:

• Manage the requisition process. The enabler is an e-procurement system like Ariba Buyer or those available from PeopleSoft or SAP. The system lets users generate requisitions and send the requisitions on for approval. Automation benefits are slim, but putting in the system gives a company some rudimentary visibility into spend and some marginal control over what is spent.
• Analyze spend. The enabler is a spend analytics system, a data mart or data warehouse that contains historical spend data. With the data warehouse, people can look at the spend and see where a company has overspent or underspent. Without such a database, the best one can do is to look at a few spend categories with a spreadsheet. However, creating such a database is an expensive and time-consuming process, because of data quality and integrity issues.
• Automate communication with suppliers. The Internet has made it possible and reasonable to use other devices besides the fax machine to send out POs. One can post them on a web site, e-mail them, etc., etc. This is most useful with direct materials in industries where reducing lead time and increasing supplier reliability are strategic imperatives. But it's not a bad thing anywhere.
• Create a strategic sourcing process. The enabler here is any of a number of end-to-end strategic sourcing packages that support all the activities involved in category management, from setting a strategy to doing an online auction to insuring that the actual spend meets the specifications in the contract. This is a new technology and not widely used, but we believe it has the most promise of all the approaches.

B2B Analysts, Inc., spends a substantial amount of research effort on SRM--tracking companies in all the areas above, monitoring the success or failure of the brave companies that are trying them out, and assessing best practices and critical success factors.

We published what we believe is the authoritative study of applications in the data warehouse and strategic sourcing spaces in August, 2002, and we are now preparing an update.

Reports on individual application companies in the space are available to customers only. If you are interested in getting access to our research or would like help with making your purchasing processes more effective using an enabling technology, please contact us.

>We do publish reports on the site, but they are dated. For a list of these reports, see our archive.