Supplier Relationship Management
Sector Outlook, Fourth Quarter, 2003
The SRM market is the most immature of all the major markets, and
there is a simple reason for this: purchasing is rarely seen as a
We're not saying this is how it should be. Profits, after all, consist
of inflow - outflow. In a stable company, the simplest way of increasing
profits is to reduce outflow. So we think purchasing is often strategic.
But as long as corporate executives disagree with us, in
many companies, a huge amount of the overall effort in purchasing will
be spent on faxing POs, checking up on deliveries, and trying vainly to
track overall spending.
On the one hand, this makes the area a rich one for applications, because
there is so much one can do. On the other hand, it has also been a graveyard
for application companies who overestimated the purchasing department's willingness
to spend money. Does anyone remember Commerce One?
Most companies already have a system that can generate POs, manage
invoices, and write checks. To do more in the area, there seem to be
four reasonable approaches, each of which requires a technology enabler:
- Manage the requisition process. The enabler is an e-procurement
system like Ariba Buyer or those available from PeopleSoft or SAP. The
system lets users generate requisitions and send the requisitions on
for approval. Automation benefits are slim, but putting in the system
gives a company some rudimentary visibility into spend and
control over what is spent.
- Analyze spend. The enabler is a spend analytics system, a data
mart or data warehouse that contains historical spend data. With the data
warehouse, people can look at the spend and see where a company has overspent
or underspent. Without such a database, the best one can do is to look at
a few spend categories with a spreadsheet. However, creating such a database
is an expensive and time-consuming process, because of data quality and integrity
- Automate communication with suppliers. The Internet has made it possible
and reasonable to use other devices besides the fax machine to send out POs. One can
post them on a web site, e-mail them, etc., etc. This is most useful with
direct materials in industries where reducing lead time and increasing supplier
reliability are strategic imperatives. But it's not a bad thing anywhere.
- Create a strategic sourcing process. The enabler here is any of a number
of end-to-end strategic sourcing packages that support all the activities involved
in category management, from setting a strategy to doing an online auction to
insuring that the actual spend meets the specifications in the contract. This
is a new technology and not widely used, but we believe it has the most promise
of all the approaches.
B2B Analysts, Inc., spends a substantial amount of
research effort on SRM--tracking companies in all the
areas above, monitoring the success or failure of the
brave companies that are trying them out, and assessing
best practices and critical success factors.
We published what we believe is the authoritative
study of applications in the data warehouse
and strategic sourcing spaces in
August, 2002, and
we are now preparing an update.
Reports on individual application companies in the space are available to
customers only. If you are interested in getting access to our research or would like help with
making your purchasing processes more effective using an enabling technology, please
>We do publish reports on the site, but they are dated. For a list
of these reports, see our