From SCDigest's On-Target e-Magazine

- March 26, 2015

Supply Chain News: Strategic Sourcing Software Enabling Companies to Continue to Raise the Bar on Capabilities, Gartner Says

Best-of-Breen Vendors Continue to Dominate, as Cloud Delivery has become the Standard

SDigest Editorial Staff 

A few weeks ago, the analysts at Gartner released their latest "Magic Quadrant" for strategic sourcing applications. While we can't publish the actual MQ itself, with its series of vendor "dots" (that's reserved for Gartner clients, though some of the vendors make the document available on their web sites if you do a search), we can summarize much of the surrounding commentary, which is very interesting.

First, some definitions: Gartner defines strategic sourcing application suites as a set of related, integrated solutions that support "upstream" procurement activities, meaning the strategic work a procurement organization performs for planning, assessment and performance management. That as opposed to basic procurement software - usually from an ERP provider - that do the basic transactional blocking and tackling related to operational requisitioning, ordering and payment processes.

SCDigest Says: 53% of the vendors covered in the report offer the ability to approve a contract or sourcing event from a mobile device, up dramatically from 34% in 2013. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

"Gartner says within that strategic sourcing context that there are four main blocks of functionality in supporting software application suites:

• Spend analysis: Software for cleansing, enhancing and classifying spend activities. This category of solution generally features rule-based data cleansing, automated category-level classification, analytics and decision support. Automated spend analysis is used in procurement and sourcing to quantify spend by supplier, category, item and more and to identify opportunities for cost reduction through improved procurement leverage and supply base resizing.

• E-sourcing: These applications help organizations solicit and evaluate information, such as RFIs and RFPs. Gartner says this category of software supports "project" bidding where the outcome is a long-term agreement. Some solutions enable large-scale, complex bid events with thousands of line items and awards spanning multiple suppliers."

• Contract management: The solutions in this category of sourcing software help organizations document and track supply agreements. Gartner says that contract management functionality offered by sourcing software vendors varies widely. At one end of the spectrum, they create a database of information such as supplier name, agreement value and expiration date. At the other end, some suites support contract negotiation, pre-signature approval workflow and post-execution activities, such as version control, burn rate tracking and change order management.

• Supply base management (SBM): These applications help procurement organizations solicit and manage supplier information, risk and performance. They accomplish this by providing a means and a place to assemble, archive and organize supplier data. SBM data sources include information such as contact information, insurance certificates and plant locations collected directly from suppliers through a portal interface. Third-party information can be pulled in via web services, RSS feeds or manual input, and can include financial performance data, social sentiment analysis, news and public information, such as export filings. Internally generated data, such as audit records and performance statistics, round out the information managed in the SBM module

Gartner says other functionality sometimes available in strategic sourcing application suites includes project management, category management, savings tracking and supplier marketplaces.

New Capabilities Enabling Procurement Transformation

Of course, there has been a substantial evolution - perhaps better characterized as a revolution - in the procurement profession over the past 25 years. Over that time, procurement organizations have transformed from paper-intensive processes focused on purchase order processing to a strategically-oriented enterprise function working to fully leverage spending power to build a competitive advantage.

The advent of the Internet, and more recently the Cloud, have enabled collaborative capabilities in procurement and served as a trigger for a new generation of procurement solutions that support and enable this transformation, Gartner says.

This procurement transformation has naturally impacted the market for strategic sourcing solutions.

"A decade ago most organizations expected to license, deploy and significantly customize an ERP vendor offering to serve as a "system of record" for upstream activities," Gartner says. "Most of these initiatives failed because ERP solutions are architected for transaction-oriented processes."

Instead, the market for strategic sourcing software is now dominated by "best-of-breed" providers (including SAP's Ariba unit), today largely delivered as packaged, multi-tenant SaaS solutions that deliver much of the needed functionality out of the box, Gartner says. These best-of-breed solutions have displaced the ERP-based sourcing modules "by delivering a knowledge-management-oriented flexible architecture, quicker time to value, lower overall cost of ownership and order-of-magnitude improvements in access to innovation," Gartner notes.

Interestingly, none of the solutions evaluated in the 2015 strategic sourcing Magic Quadrant are native ERP applications, again noting that SAP's Ariba unit, acquired several years ago, is in the leadership quadrant in the MQ.

The focus of procurement leaders now, Gartner says, is to use the software to better track procurement savings, measure and monitor supply risk, support advanced category management, and leverage community/ecosystem knowledge.

(Sourcing and Procurement Article Continues Below)