On Friday I asked if Gartner’s new Quadrant for Strategic Sourcing Application Suites was Magic or Tragic?. Even though it was better than some of the previous quadrants, the fact that it only covered 14 vendors, that 4 of them seemed to slip in under the wire, that the lack of response time probably excluded a number of vendors that should have been there, and that there were a number of statements that just make you go “huh?” (and lead you to believe the report was as rushed as the surveys), I’ve decided that it was more tragic than magic.
And although it wasn’t all bad, as the market overview and definition was pretty good, and the vendor descriptions were mostly accurate, there are a dozen statements that just aren’t right. And even though, as a commenter pointed out, it’s probably not worth the column-inches I’m going to use, given the importance assigned to this report by the market space (which is equalled only by the Forrester Grave), I can’t let it go. I need to make sure you don’t misread the statements and make a bad decision. So I’m going to take the most important issues point by point.
Misleading Statement: Moreover, we are now seeing suite-level functionality that leverages the common database and data model of an integrated collection of solutions, such as the ability to pull suppliers identified in a spending analysis exercise into a request for proposal, and the automatic population of a contract template with supplier information and pricing data from a winning bid.
Correction: Now? NOW!?! Get real. This functionality has been around for at least 7 years. Ariba has had it for a while. Procuri, now Ariba, always had it. Iasta always had it. Heck, even Mindflow had it between the core modules back in 2002/2003 when I was there. Maybe the big ERP vendors didn’t have it until recently, and maybe the players that acquired most of their solutions didn’t have it, but it’s not new. And it’s not hard. And yes, you should expect it if you’re buying a suite.
Missing the Point: Since the trend toward suites is likely to continue indefinitely, consider point solution providers of supply base management, spending analysis, strategic sourcing and enterprise contract management only if the arrangement is short term to medium term (three to five years), or if the niche vendor’s solution can provide a competitive advantage.
Correction: Term is irrelevant. It’s about value. As long as a point provider can give you more value, you go with the point provider. If that’s a year, it’s a year. If that’s five years, it’s five years. If it’s until you retire, it’s until you retire.
Lack of Clarity: Go without business consulting services only if you have five or more years experience with a suite, and if you have an established, internal center of excellence to help users.
Correction: While you should definitely consider using category and process experts if you are not experienced and / or do not have a centre of excellence, if it takes you five years to learn a tool, you have a problem. A big problem. It shouldn’t take you five years. It shouldn’t take you five months. It shouldn’t even take five days. Not only is RFX, Auction, Project Management, Contract Management, and Spend Analysis, etc. well understood, but there are dozens of solutions out there that are easier to use than Microsoft Office. Your average sourcing professional should be able to pick up the basics on their own in a few minutes. If they can’t, the tool is too complex or poorly designed and you should find a better tool.
True, but Bad Advice: Most organizations that utilize spending analysis refresh on a quarterly basis.
Correction: While that may still be true, it’s the wrong approach to spend analysis. The right approach is to refresh at least weekly, if not daily, and there are at least a dozen providers who can integrate with your existing systems and do that. A good spend analysis system should allow you to track your spending. It’s not very useful if all it tells you is what you spent three months ago.
DANGEROUSLY WRONG: The reverse auction is the most powerful way to drive down costs …
Correction: WTF? When not expertly applied (and even sometimes when it is expertly applied), a reverse auction is the most powerful way to damage relationships, drive quality through the floor, and drive up spend in times of greatest needs. It’s as I wrote in my guest post on a brief history of optimization for By the Buy:
In the beginning, there was the reverse auction. Industry visionaries applied reverse auctions to their sourcing events for commodity and competitive categories (in the mid nineties) and saved a small fortune (which sometimes exceeded 30%, 50%, and even 70% of previous category costs). They were heroes and the world was good.
Then, a couple of years later when they circled back to the first categories and held another auction, something unexpected (to them) happened. The total savings shrunk considerably. The average savings, expressed in terms of percentages, dropped from the mid double digits to the (low) single digits. The savings often equalled what they would have expected from a traditional RFX / negotiation process. But the market was a seller’s market and the total event time, and thus the total event cost, was low, so with the right spin, they still looked quite successful. The world was still good.
Another couple of years passed, and they circled back to the first categories again. But this time, the market was a buyer’s market again and savings were bound to equal those seen in the initial category reverse auctions, right? Wrong! Instead, something really surprising (to them) happened — instead of saving money, total costs increased — sometimes in the double digits! The world was a dark and scary place. What happened? Could it have been avoided?
In short, reverse auctions are NOT strategic!