B2B Connectivity for Direct
Exemplary sells what is B2B connectivity software for direct procurement.
The software tries to provide value by automating the often messy
and time-intensive processes associated with creating purchase orders
for direct materials and moving them between companies. The idea
has merit, and the company's understanding of the issues is good,
but with only one customer live, Exemplary needs proof points.
About Exemplary
Exemplary is a 1998 spinoff from Hewlett Packard Based in Cupertino,
California. The company has 44 employees and an additional development
team in India. They are a private company, backed by Lightspeed
Venture Partners (formerly Weiss, Peck & Greer Venture Partners),
JT Venture Partners, Hewlett-Packard, Zloof Trust, and Discovery
Ventures.
Development of the technology spun off with Exemplary was lead
at HP largely by Exemplary's Director and Technical Advisor, Moshe
Zloof, and their CTO, Ravi Krishnamurthy. It was a rapid development
environment for e-business applications. The current product has
been under development for some time, but began to take its current
shape in January.
The underlying technology would be suitable for supporting any
kind of B2B process. The choice of direct procurement was due primarily
to a perception that this market was underserved.
Exemplary is an early-stage technology company. It has spent most
of its life building a technology and getting one or two companies
up on the product. It has yet to hire a VP of Sales.
Customers
Exemplary's only live customer is Sunrise Telecom, in San Jose,
a small ($114 million) manufacturer of service verification equipment
for the telecom industry. Exemplary has also sold the product to
a division of IBM (which one is not identified), which "plans
to use it globally."
Sunrise has the product running live in one division and is rolling
it out to three other divisions. At Sunrise, not all suppliers are
connected; they have focused on the most important suppliers, which
makes sense.
Industries
High tech
Industrial Equipment
Consumer Packaged Goods
The first two customers are in high-tech, but the current focus
is on industrial equipment and CPG. This makes sense, since the
value of procurement automation depends heavily on volume of purchase
orders, and both industries purchase in high volumes. The way the
procurement automation works, the product can automate Kanban (VMI)
and scheduled release (which they call CPFR) replenishment as well
as standard PO-based replenishment.
The Product
Collaborative Xchange or cX is a backbone system that collects
purchasing transactions from back-end systems, holds them, and pushes
them out by the best available means to suppliers.
The best-available method will depend on the supplier. Like other
systems, cX can distribute the order via fax, e-mail, a web page,
EDI, or server-to-server.
cX also takes return communications, such as ASNs and pushes them
into the back-end system. The return communication can come in any
form, but some communications (like fax and e-mail) are simply monitored,
not received by the system. A buyer must retype the contents of
a fax into the system, for instance.
Workflow and business rules are built in, so alerts can be generated
if a step is done incorrectly. For instance, if an ASN is not received
or if the amount being sent is not what was asked for, the system
can send an e-mail.
The key difference between what Exemplary does and what others
do lies in Exemplary's focus on automation.
Exemplary doesn't just provide messaging between a back-end system
and Exemplary; it also automates the process of releasing POs (or
scheduled releases, etc.), using business rules. The ability to
take a data event from an ERP system and, based on the business
rules appropriate, pass the data to a manager for approval or send
the data directly to supplier is the technology that came from HP.
The automation also extends as far as the supplier. It doesn't
just send out faxes; it provides guaranteed delivery with alerts
and a (somewhat limited) same-system mechanism for receiving responses.
The cX-ERP integration is done in a somewhat unusual way. As is
necessary in such systems, cX does have an item and supplier master.
But it does not build integration between the master files. Instead,
it reads the item/supplier information from the POs. This clearly
reduces the cost of integration and speeds up implementation, but
means that the two sets of master files are out of synch. It is
also an advantage when there are multiple ERP systems feeding cX,
since less integration and data harmonization is required.
cX does not currently provide what we call process-level automation.
It is planning on providing the ability to "converse"
about an order (that is, trade comments and record them), but it
does not allow smooth handling of order changes or cancellations
within the system. Expediters will not find that most of what they
do is automated, although they may find that they have more time
to work on the exceptions.
This approach to automating procurement is reflected in the way
Exemplary handles supplier enablement. Exemplary can use any of
five methods to communicate with suppliers:
- Server-to-server.
Using WebMethods as a partner, Exemplary can deliver and receive
purchasing communications directly to the supplier's system.
- EDI. Exemplary can distribute or receive EDI messages. (It was unclear
to us whether Exemplary provides full EDI translation services.)
- E-mail. E-mails are sent to the supplier. Return e-mails
are monitored, but must be entered into the system by the buyer.
- Fax. Faxes are monitored, but the return faxes must be
entered into the system by the buyer.
- Internet access to the system.
The seller gets information from a browser and enters in replies
directly.
For process-level automation to work, the supplier must be able
to access the system via browser. Exemplary feels that it is more
important to let suppliers use whatever method they're used to using.
With Exemplary installed, a supplier can continue to receive faxes
and send faxes; Exemplary simply monitors the return faxes.
Exemplary also provides reporting on order status, which is available
to buyers and to power users at the suppliers. In situations where
there are multiple ERP systems and a close relationship with the
suppliers, this is a clear benefit to power users at the supplier,
since they can now monitor the status of all orders going to the
customer, even if they are going to different sites with different
back end system.
Value
The value of automating procurement is not insignificant. Much
time now is lost in printing out POs and faxing them; checking that
the fax got there, and distributing return faxes. If the process
can be speeded up, there are three basic kinds of value to be gained:
- Time saving because the delivery of the PO is automated.
- Lead time reduction, because the delivery happens more
quickly.
- Less time and money spent correcting errors (e.g.,
less premium air freight) or suffering because errors went uncorrected
(unplanned down time).
The reporting capability is also significant when there are multiple
back-end systems, since this gives buyers and suppliers a single
place to monitor orders. For both buyer and supplier, the benefit
lies in reduced expediting and greater responsiveness.
Clearly, the better connected the supplier is, the greater the
benefit. Exemplary's server-to-server capabilities (in partnership
with WebMethods) and EDI capabilities may be the most attractive
to large companies, even though only a few suppliers will be able
to take advantage of them.
In all probability, users will end up segmenting suppliers by
capability, getting significant value from automating relationships
with some suppliers, but with other suppliers, not even using the
system. Exemplary plans for this in its (relatively few) implementations,
getting the EDI suppliers up and running first and following with
selected suppliers for whom automation provides particular value.
At the same time, the value is limited. Reducing the amount of
time spent on low value-add activities (like faxing) does free people
for more important activities. But even greater value would be available
from systems that supported those more important activities. As
it is, Exemplary leaves supplier assessment, order changes or cancellations,
etc. to the back-end system.
We believe that the cost begins at $250,000, which would cover
one site.
Assessment
POSITIVE: People who work in purchasing departments like automated,
guaranteed delivery of purchase orders. The ERP companies offer
fax delivery, in many cases, but they haven't thought through the
whole process, and consequently, there is room for a product that
does this better. Particularly when there are multiple ERP systems
and high volumes of order delivery, there is a real need for this
service. We are unable to assess the quality of the product, but
the heritage of the company, its heavy investment in technology,
and the knowledge of its senior people all bode well.
The great strength of the product is its integration with the back-end
systems, which makes the lengthy process of approving and printing
out POs more efficient.
Exemplary makes much of its ability to handle Kanban (VMI), scheduled
releases (CPFR), and standard POs. Given its architecture, it's
not surprising that it can do this, but we agree that the flexibility
is a benefit.
NEGATIVE: The lack of process-level automation and the inability
to do much with return faxes or e-mails limits the benefit. Segmenting
suppliers is a good way of focusing effort so as to get the maximum
benefit, but there is also a benefit to making this the single point
of access for all suppliers. The reported cost is relatively high,
though for large companies, the ROI should be there.
We believe, however, that most companies interested in automating
these processes should focus as much on the costs associated with
expediting, changing, and correcting orders as on the costs of generating
and distributing them in the first place. Exemplary is less good
in this area.
The limited customer base right now means that Exemplary does not
have the experience with integration (either supplier or back-end)
that it will eventually need, and this will increase costs for the
next round of buyers.
The same goes for EDI integration and server-to-server integration,
which will be a challenge for the company until it gets more experience.
BOTTOM LINE: Process automation of direct procurement is a need
for many companies, and Exemplary's ability to integrate with multiple
back-end systems will prove interesting to companies that are interested
in moving in this area. The lack of process-level automation limits
the total value available from the package, and the limited customer
base increases the risk.
Competitive Landscape
Many, many companies are providing private trading exchange software
that apparently does what Exemplary is trying to do. The primary
differentiator for Exemplary is its focus on automating delivery
and handling of direct procurement POs. This focus is what creates
the following differentiators: · Though many companies claim
that they will take an order and deliver it, not many can automate
the process of releasing it.
- Many competitors are limited
to single line-item orders, whereas Exemplary can handle multiple
date (scheduled release or CPFR) orders, multiple line-item orders,
and Kanban (VMI) messages, which most private trading exchange software
(such as Commerce One's) cannot.
- Many companies do not
guarantee delivery or track responses.
- Many companies do
not handle server-to-server or EDI integration well.
- A willingness to let the supplier use its preferred method of communication.
The biggest competitors for Exemplary are probably the ERP companies
or unwillingness to move. Smaller companies in the space include
E2Open, NetVendor, and SupplyWorks. Most of these companies will
compete in the general industrial area and possibly in electronics.
Within CPG, Exemplary would see less competition.
For other SRM company assessments, see our archive.
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