Monthly Archives: October 2014

An Analysis of eSourcing’s Fast Growth and Predictions for 2015 & Beyond


Today’s guest post is by Jill Ivancich, COO of MM4, Xchanging’s procurement technology solution. Xchanging is a business process, procurement and technology services provider. To learn more, visit www.mm4.com or www.xchanging.com.

In a recent Market Overview report by Forrester Research, Vice President and Principal Analyst Andrew Bartels reported that the ePurchasing software market will see 10% growth in 2014. Additionally, Forrester and Bartels predict double-digit growth for Software-as-a-Service (SaaS)-based eProcurement solutions, under which eSourcing falls. This is a promising outlook for a market that saw global revenue growth of just 5.9% in 2012, according to research reports.

Big Demand, Right Now

The report compelled me to consider what’s fueling the demand now for eSourcing. Factors like its ability to provide risk reduction, transparency and expedited savings have been big drivers for growth based on my recent experience and customer feedback, along with the intelligence it provides. The continued need to drive savings is causing companies to review their entire sourcing process and bring the best in class tools to help execute. We’ve seen eSourcing become a trusted tool for the everyday buyer — one that combines components like company intelligence, market insights, and user and supplier support. These assets ensure that clients have the intelligence needed to drive real results quickly.

The bigger picture is this: the world of procurement has reached a peak in complexity. Exchange rates have never been more volatile, sourcing destinations are experiencing huge shifts as production and services move away from China and India to new and frontier markets, environmental disasters are massively impacting supply, and trading conditions and regulations are constantly changing. In response, some of the biggest companies in the world are turning to cloud-native, next-gen eSourcing solutions to empower procurement teams to know not just how to source, but also what to source, when to source and from whom to source.

What’s Needed for Increased Adoption

The Hackett Group reports that organizations that leverage the most out of technology see 27% overall better performance within their procurement operations. And that’s exactly where more procurement teams will be investing in the coming years. But right now, we’re seeing interest levels in eSourcing peaking, not necessarily adoption. There’s still progress to be made before we reach critical mass, and that will require addressing the specific pain-points of CPOs and procurement teams, and the ability to transform business as usual with an impactful suite of diverse tools that are intuitive and easy to implement.

For eSourcing adoption to continue on its current growth trajectory, addressing the issue of support and knowledge is imperative. Supplier risk will be critical, especially as new, low-cost markets to source from are being considered more heavily. Integration of third-party information sources, so customer’s workflow and intelligence levels are optimized, will also be key.

To address the challenge of market volatility, cost modeling modules will become more important as part of eSourcing solutions. Identifying key metrics that influence the company, such as exchange rates from current or potential trade regions and commodity prices for key inputs, will be increasingly critical. Focusing on trends and forecasts rather than spot data, which often has little or no direct value in eSourcing, can help to address this challenge.

In terms of competition within the market, looking ahead, acquisitions will lead. However, the acquired won’t necessarily be gobbled up. The technology companies with the right infrastructure in place can still thrive, and my business, MM4, is one example.

Closing Remarks

New technology and service innovation has drastically expanded the applicability of eSourcing, and it will continue to do so for several years to come. As leveraging technology effectively remains a goal for procurement teams, eSourcing will arm CPOs with the intelligence needed to drive real cost reduction, make smarter buying decisions and have deeper visibility into realized savings. Solutions that support the entire sourcing lifecycle will continue to grow in demand, become more refined and play an increasingly large role in driving sourcing success for businesses of all sizes.

Thanks, Jill.

Why Do Suppliers Get Screwed?

In our recent series, we noted that Supplier Pre-Payment where pre-payment is made within the supply chain is an advanced concept and not one even most of the Supply Chain Leaders are doing … even though it’s so simple that anyone can do it. Instead, what usually happens, is suppliers get their payment delayed months and months and months when they should be paid promptly so that, they too, can pay their suppliers promptly. In effect, they get screwed, and their suppliers get screwed.

And it’s a question that we struggle with when the answer is so obvious. But I know the answer, and I’m going to tell you.

It’s because Finance Forerunners are Fools!

Let me be clear that I do not mean that all people in Finance are fools – as many of today’s analysts have PhDs and build financial models that would make the doctor proud if he were still teaching and his students built such in-depth models in an attempt to understand the business world that supply chain lives in. These people are not fools — they are investigators with intuition who could help companies make better decisions. Nor do I mean that their bosses, typically without their education or their brains, are fools. Most people who make CFO are, even if their view of the world is limited and skewed, reasonably intelligent and capable of doing math and logic, which less than 1 in 7 adults in America are capable of doing.

No, it is the people who run the financial world, set the financial and accounting standards, and teach it in Universities who are fools.

Why? Because the way they define the operating cycle, financial net obligations, and cost of capital is stupid. Very stupid.

Why? Because, in the financial world, including the world of CFA (Chartered Financial Analyst), working capital management theory (as per a recent textbook by prominent finance authorities), and, most importantly, accounting standards, the operating cycle does NOT contain “pay suppliers” (that is cash conversion, a secondary requirement of finance), financial net obligation is defined as a fixed amount at a fixed date as per invoice terms (and not the variable function it really is), and the cost of capital is not only not fixed per opportunity (as finance would have you believe), but changes greatly depending not only on payment terms, but payment windows and supplier cost of capital (as defined as their supply chain). Moreover, all the standard financial calculations, metrics, and analysis is internal to the firm or on the firm against the market, nothing looks at the contributing factors within the supply chain.

While I understand that it historically had to be this way because

    1. definitions and metrics had to be uniform for reporting, comparison, and auditing,
    2. the data required was not always (readily) available,

and

    1. the calculations required for what is needed are intensive

…

we are now in a time where

    1. software can produce standard reports using standard analyses for tax authority reporting, comparison, and auditing while also doing variable types of WCM (working capital management) and what-if analysis in the same time frame,
    2. all of the market data can be available all of the time,

and

  1. the software does all the calculations in seconds no matter how complex you make them, the analyst just needs to define and analyze the right model.

So there is no longer any excuse for inferior definitions, models, calculations, and WCM decisions. Except for the ubiquitous excuse of “the financial authorities say this is good enough”. So we, as Supply Chain professionals, are going to not only have to learn to speak their language but teach them how to do their job.

How? You can start by perusing SI’s previous posts on the subject and then dive onto it’s upcoming series as well. Which will follow, or be part of, an expose on why Supply Chain Futurists are so foolish. (Which will take place once I manage to convince LOLCat to put down the shotgun … )