Bigger. Badder. Baffling.

As per our previous posts, the merger and acquisition cycle is peaking. Coupa went on a spending spree and bought Spend 360 and Trade Extensions. Jaggaer merged with Pool4Tool. OpenText is acquiring Covisint Corporation. And Descarte Systems acquired PCSTrac Business. And we just know more announcements are coming.

Everyone is getting bigger and badder, at the expense of BoB (whose days appear numbered), and it’s getting a bit baffling. Some of the acquisitions make a lot of sense (at least on paper) with companies trying to flesh out suites, but some like Open Text’s acquisition of Covisint (which is very vertically focussed on automotive) are stretching a bit. But what’s most baffling with the rapid pace of acquisitions are how the companies are going to manage integrations (of platform and strategy) and solution footprint.

When you get big, things can get costly … quick, especially if there are multiple platforms involved. This isn’t good for you from a market perspective (as the size of the customer base that can afford your baseline solutions will shrink), and it isn’t good from an operations perspective. There’s a reason that Oracle expected to save a Billion in operating costs by acquiring Sun, and a lot of it came down to platform. Sun Microsystems was very efficient in its software infrastructure, running almost 1,000 different systems whereas Oracle, which ate its own “one instance dog-food”, ran one Oracle instance. By migrating all of Sun’s systems into one, it saves hundreds of million a year (at least 250 to 300 by some counts, more by others). If a company has six different platforms to maintain, that’s six different hardware infrastructure costs, six different software infrastructure costs, six different dedicated support team costs, six different implementation expert team (who will implement and train third parties) costs, and so on. These costs add up. Rapidly.

And they escalate the platform costs that the companies need to charge to customers, which shrinks the perspective customer base. And if the mid-market gets squeezed out, everybody hurts as the greatest number of companies without decent Supply Management solutions (and the bulk of the 40% who don’t have solutions) are in the mid-market. So while acquisition makes sense to fill a hole, not working on ways to integrate, or at least harmonize, the solution (so that there is no duplicate development across products or unnecessary, and costly, integration efforts) can be costly. So, in some sense, the speed at which some companies are moving is a bit baffling, as good integration takes good analysis, planning, and development — all of which takes time. Given that some acquisitions are being completed in two months, and that the amount of information that can be extracted in due diligence is limited, there’s no way the average company can begin integration out of the gate. In many cases, the acquiring company (that are experts in a different technology and business process) won’t even know where to start.

In other words, while some companies might be on the right track, they are just beginning a very long journey and have thousands of miles to go before they reach their destinations. Adding acquisitions adds miles to the track — miles that have to be travelled. The question now is not do they have the vision, but how will they get there. And that can be a baffling question for anyone to answer (especially without third party expertise and guidance). But not necessarily unresolvable …

In the interim, Spend Matters has been putting together decent guides on questions to ask your providers if they were involved in one of the covered acquisitions. Check them out. And answer the questions for yourself before committing.

Platform? Bah Humbug!

Earlier this week, the medic pointed out that Jaggaer is taking the contrarian approach and almost scoffing at the idea of an integrated, unified, code base and instead pointing out that its customers want problem fixes and business solutions, and integration isn’t a concern.

And to an extent, they have a point. Not everything has to be on one cohesive code-base with one cohesive UI if some parts of the solution are only used by a few individuals or designed for a different department or the usage is disparate from the rest of the platform and/or rare. For example, you’re not typically doing opportunity spend analysis in the middle of a sourcing project (although you may want to do pricing trend and outlier analysis on submitted bids after initial RFP responses before starting an optimization). And the people doing day to day tactical buying are not doing serious advanced direct sourcing projects and so on.

That being said, if you are a sourcing pro, you are likely building direct material RFPs, analyzing responses, running optimization events, negotiating contracts, accessing and updating supplier information, managing supplier relationships, and tracking milestones. The last thing you are going to want to do is log in and out of 5 different systems on a daily basis (Spend Analysis, RFX, Optimization, SXM, CLM) — especially if they all have different UIs and UX.

Sometimes you need integration and consistency, and sometimes you don’t. But one time you really need it is when your users are not very technical and have a lot of work to do, especially of the tactical variety. Coupa would never have gotten where it is if each function was a different module with a different UI. It’s design to make end-to-end work easy for its average user is how it won. And if it can do that with sourcing (and find a way to integrate its recent acquisitions and extend them with the few pieces of missing functionality) and give sourcing pros the same experience, it will win there too. However, this is one place where Jaggaer, with a lot more experience in strategic sourcing and sourcing support, could pull ahead. If Jaggaer could seamlessly integrate Spend Radar, CombineNet, AECSoft, Upside Software and Pool4Tool into one coherent platform it would have 3 capabilities that the Spend 360 / Trade Extensions union lacks: advanced Contract Management, Advanced Supplier Performance Management, and, most importantly, advanced BoM management from the RFX down to the VMI. On paper, its one of the most impressive suite of capabilities on the market for manufacturing, pharmaceutical, aerospace, electronics, and other direct-heavy industries, but, in the end, it will be the usability that decides the ultimate winner.

Compliance – A Complex Problem with few Procurement-Centric Solutions

Why is compliance a complex problem with few Procurement-Centric Solutions? Because compliance goes well beyond the narrow view that many platforms take. At a high level, we have:

  • Regulatory Compliance
    which consists of government regulations at various levels that need to be adhered to and consists of requirements across organizational governance, workforce, materials, services, trade, and environmental considerations
  • Organizational Compliance
    which consists of adhering to the policies your organization puts in place for purchasing, inventory tracking, regulatory compliance, auditing, etc.
  • Industry Compliance
    which consists of adhering to industry standards and collective agreements
  • Governance
    which consists of ensuring that all governance requirements of the organization are met across the regulatory, organizational, and industry efforts

And when you look at the market, most of the solutions on the market are narrowly focussed on:

  • Environmental Compliance across environmental sustainability factors
  • Trade Compliance to insure that all trade regulations are adhered to (and appropriate paperwork filled out)
  • Tax Compliance to insure all appropriate taxes paid (or reclaimed)
  • Workforce Compliance to insure all workers are eligible, appropriately paid, and/or appropriately insured
  • Governance Compliance which makes sure appropriate internal processes are followed (and documentation maintained for audit trails)

… and, to slightly modify a common phase, never any two shall meet. And that’s why it’s a complex problem with few solutions in Supply Management. Will this change soon? We shall see …

Walmart: Still Running on a 56.6 baud Modem …

Walmart recently released a statement that it plans to use employees to do home deliveries, presumably to fulfill online orders, as recently reported on The Washington Post. the doctor couldn’t believe it at first … convinced it was an article from the Onion misposted on a real news site, but apparently it’s real.

Overlooking all the things that could go terribly wrong with this, and all of the new legal liabilities this could cause them to incur (which would give your average risk manager and Chief Counsel nightmares for months), this makes absolutely no sense from a supply chain perspective where the name of the game is cost control (unless, of course, Walmart is looking for a way to actually lose money as a tax avoidance scheme).

There’s a reason even Amazon uses third party carriers for its prime service, and the reason is that, as stated by the article, last mile logistics are costly. Very costly. And they can only be minimized by maximizing the number of packages delivered per hour by a driver. An employee who can only deliver a few packages due to space limitations in their car can’t maximize deliveries compared to a Fedex or UPS van driver that has a van built to maximize the number of packages that can be carried at one time and that is making deliveries determined by software that minimizes the delivery radius of all assigned packaged and delivery time using route optimization software (that eliminates left turns and backed-up routes).

Now, maybe Walmart is thinking that they can introduce a new kind of package assignment algorithm that minimizes the distance from an employee’s home route, and then just pay that employee for additional distance and time required (using google map calculations, etc.), but you still have the problem that the closest employee(s) may not be working that day, may not be able to do deliveries that day, or may not be able to fit the packages in their vehicle. Most of the time the software will have to re-assign and re-assign again until a viable sub-optimal match is found, and at the end of the day the cost would be more than just having a full time driver deliver everything according to route optimization software at a cost that is still more than negotiating a good volume-based outsourcing agreement with the dominant local carriers who can increase the delivery density even more.

The reality is that just because something sounds good (as in 90% of all customers live within 10 miles, where most employees are also located), does not mean it is good — and that’s why you need to perform analytics and optimization before embarking on major initiatives such as this. Because even if Walmart could get near-optimal assignments, it still needs volume, and as long as it takes 3 times as long to do anything on their site as it does on Amazon (and that is definitely true in Canada, where the outsourced development organization prefers to benchmark against sites for other real-world retailers and not Amazon from an online retail perspective), and as long as they continue to ship 6 (light) items on the same order across 5 boxes, their online volume growth is not going to be fast enough to make this idea anywhere as efficient as they hope in the next few years. This is one case where the doctor hopes their trials flop and they see the error of their ways and go back to investing in more hybrid vehicles, more efficient warehouses and inventory management methods, and other initiatives guaranteed to increase efficiency and sustainability.

Are BoB’s Days Numbered?

Today Jaggaer, formerly SciQuest, announced their merger with Pool4Tool, the world leader in direct (materials) sourcing (procurement) with the most extensive direct procurement suite and one of the largest manufacturer client bases in the Supply Management world. Hot on the heels of Coupa’s recent acquisitions of Spend 360 and Trade Extensions, Jaggaer appears to have rekindled the old SciQuest motto of buy it, don’t build it (as they acquired AECsoft for Supplier Information Management, Upside Software for Contract Management, Spend Radar for Spend Analysis, and CombineNet for advanced sourcing and decision optimization) as they haven’t really built anything new since they built their basic e-Procurement solution (originally for the Government and Education Sectors) last decade. Add the BravoSolution acquisition of Puridiom, the acquisitions of b-pack and Iasta by Selectica in the creation of Determine, and we are now in the situation where 6 of the top 9 Source-to-Pay providers got where they were through (multiple) acquisitions. [The big 9 Source-to-Pay providers that were invited to SpendMatters upcoming Strategic Sourcing Solution Maps are SAP Ariba, BravoSolution, Coupa (Trade Extensions), Determine, GEP, iValua, Jaggaer (Pool4Tool), Synertrade, and Zycus. All but Ivalua, Synertrade, and Zycus have acquired major BoB players as part of their growth.]

The BoB pool is shrinking rapidly. [Only 6 BoB providers were deemed critical enough for the first round of the SpendMatters Sourcing Solution Maps: Bonfire, EC Sourcing, Keelvar, Market Dojo, ScanMarket, and ScoutRFP. ScanMarket is already being used by Basware as their Sourcing portal and will likely be acquired in days to come, ScoutRFP is backed by VCs looking for a big exit, and Keelvar is the last BoB optimization-backed sourcing platform on the market. This list could shrink by half within a year.] This begs the obvious question, are BoB’s days numbered?

Let’s start by asking why are BoB providers being gobbled up like thanksgiving turkeys in meat-loving America? The answer lies in the fact that many older executives still believe that you can’t go wrong buying IBM, which, today, translates into you can’t go wrong buying from the biggest company in the space. So now all the big companies are trying to get bigger so that not only can they be the biggest game on the block, but also be big enough to not be crossed off the list as too risky. It won’t be long before any big procurement company wanting to be a big source-to-pay company merges or acquires the above (and any of the best-of-breed sourcing wanting to be a best-of-breed source-to-pay does the same).

It won’t be long before only a handful of BoB providers among the ones listed (and among the BoB invited to the initial SpendMatters e-Procurement Solution Maps) remain. But does this mean it’s the end for BoB?

Not necessarily. While larger mid-size and large enterprises will continue their quest for one-stop-shop solutions, mid-size enterprises will not be able to afford the increasingly large price-tags that these end-to-end suites (with all their bells and whistles) come with. As a result, while the current class of BoB providers will continue to shrink over the next year or so (as the M&A cycle peaks again), a new slate of best of breed providers will crop up to serve the mid-market, which is still a bit of a blue ocean as 40% of these companies still don’t have a solution at all!

So while it looks like BoBs days are numbered, BoB will rise again. (And then, a few years later, the M&A cycle will begin anew.)