Define a space, occupy a space
What does it mean, to "automate supplier relationships?"
By Kevin Parker, editorial director -- Manufacturing Business Technology, 6/1/2002 12:00:00 AM
Even as debate lingers as to whether there exists a business software application space justly titled supplier relationship management (SRM), enterprise suite, supply chain, and so-called best-of-breed software vendors are introducing solutions that expand the footprint of the automated procurement function.
According to Beth Barling, an analyst with Boston-based information technology advisory firm AMR Research, SRM as a discrete concept was first promulgated last year by Dallas-based i2 Technologies.
Given trends toward greater outsourcing and use of contract manufacturing—itself enabled by steadily falling transaction costs due to computerization—it's only natural that software developers would start to build up code around the task of managing interactions with suppliers.
The SRM waters are somewhat muddied, however, simply because the scope of supplier interactions are so broad and deep. For example, product life-cycle management, which automates platform-independent sharing of product-related data, surely overlaps with SRM. By the same token, one can ask how SRM fits into a world that some say increasingly is driven by private and public trade exchanges. Is SRM about one-to-one, one-to-many, or many-to-many relationships? Another kind of SRM focuses on materials replenishment as part of execution of a procurement contract.
Regardless, supply chain management software vendors such as i2 Technologies and Rockville, Md.-based Manugistics see SRM completing a triad of application spaces—i.e., supply chain planning, customer relationship management, and SRM—that constitute a "big tent" for manufacturing and supply chain management, and that potentially serve as an alternative to the ruling enterprise resources planning (ERP) paradigm.
At the same time, enterprise suite vendors such as SAP, Newtown Square, Pa.; Oracle Corp., Redwood Shores, Calif.; and Pleasanton, Calif.-based PeopleSoft—and a host of other vendors serving mid-size manufacturers, which already have procurement functionality, according to Barling—see; SRM as "expanding process support to other procurement-related activities like spend analysis, e-sourcing, and contract management."
Given the relative newness of SRM, it may be useful to examine in some detail several examples of SRM functionality recently introduced.
Source to settle
Competition in the SRM space is heating up with the recent announcement—at the PeopleSoft Leadership Summit 2002, held April 29-30 in Las Vegas—of PeopleSoft SRM 8.4, a significant upgrade to PeopleSoft's initial release of SRM last year. PeopleSoft says it already has about 300 customers committed to its SRM product, with about half of them live, not counting the 1,500 users of the PeopleSoft enterprise system for procurement.
"PeopleSoft Supply Chain Management [of which supplier relationship management is a part] has enabled Honeywell Federal Manufacturing & Technologies [FM&T] to greatly enhance communication among its customers, suppliers, and employees," says Bill Ross senior project manager of supply chain for Honeywell FM&T, Kansas City. "The speed and the accuracy of the information shared is much more useful and timely, and means improved flexibility and integration across our supply chain."
According to Boston-based AMR Research's Bruce Richardson, one important aspect of the new release is that it "rounds out" PeopleSoft's offering for strategic sourcing. The term strategic sourcing denotes everything that precedes the signing of a contract—including spend analysis, identifying potential suppliers, request for quotation, and contract negotiation; as well as several things that come later, including monitoring and improving suppliers.
Sharyn Leaver, an analyst with Cambridge, Mass.-based Forrester Research, says that strategic sourcing emerged as e-procurement capabilities were first applied to direct materials—i.e., those consumed in production; as opposed to indirect materials, those used in support of production.
During the B2B gold rush, when such things as reverse auctions through trade exchanges first started taking place, it soon became painfully obvious that these production-related goods could not be purchased solely on the basis of price. For one thing, in many cases, direct materials suppliers are actually helping to build and design their customers' products, which means the supplier's expertise and ability to deliver must be examined with a comb of finer tooth. Strategic sourcing seeks to automate this increasingly burdensome task.
As Bob Schecterle, a PeopleSoft vice president, comments, "Reverse auctions do not strategic sourcing make."
Schecterle says PeopleSoft first looked to acquire a software vendor that had the strategic sourcing capabilities the company wanted to offer its customers, "but there wasn't anyone we saw that was covering the whole process. So we built it ourselves based on a robust set of requirements that covered this 'source to settle' business process and a wide range of related purchasing analytics. The system can seamlessly integrate with the PeopleSoft enterprise suite, or be sold as a stand-alone system linked to anyone's back-end systems."
A key capability that differentiates PeopleSoft SRM 8.4 from the competition, according to Schecterle, is services procurement, which the vendor did acquire when it bought SkillsVillage. "We are the only vendor that has combined goods and services expenditure management," says Schecterle.
On June 1, 2001 PeopleSoft announced completion of its acquisition of SkillsVillage. The company said at the time that the acquisition would result in the software industry's only pure Internet solution to automate a company's entire services procurement process—for complete management control over spending on all services; automated procurement of services, from requisition to payment; and real-time collaboration with services suppliers.
Trading partner management
It's been widely remarked that the biggest technology impediment to what was expected to be widespread use of public and private trade exchanges has been the difficulties of integrating to the many different back-end enterprise systems on which trading partners are resident. Another challenge is accommodating the entrenched investments manufacturers have in electronic data interchange, and many competing message formats based on eXtensible markup language (XML).
To help companies overcome these challenges, says Schecterle, PeopleSoft includes as part of SRM a trading partner management system that constitutes a single repository for all rules governing how a company does business with its partners.
Trading partner management, says Schecterle, sits on top of an "integration broker." The integration broker performs needed XML format and other type transformations. For example, one partner may want to procure through XML business documents over HTTPS (Hypertext Transfer Protocol over Secure Socket Layer), while receiving invoices through a portal and Web browser.
"Supported documents and technology standards can be specified," says Schecterle, "opening up the system for trading-partner self-registration, which can then be routed for approval within the purchasing company. In essence, this gives a company what it needs to build a private trade exchange."
At this point, it all begins to sound a lot like Web services. For example, potential suppliers can be identified through integrated partner directories using Universal Description, Discovery, and Integration (UDDI).
Trading partner management gives companies the tools they need to manage supplier relationships over time, as well as to analyze the effectiveness of one supplier versus other suppliers based on defined criteria and weights, established metrics, and an overall score.
In day-to-day operation, users create "buying events," invite suppliers to register, and use event analysis to determine the optimal supplier. This "RFx" process includes formulating requirements, selecting and inviting bidders, receiving bids, scoring and analyzing the results, negotiating terms, and awarding the contract.
A heated exchange
Scott Wilkerson, director of product management for Commerce One, a Pleasanton, Calif.-based vendor of procurement and strategic sourcing software, says the enterprise suite vendors must not have had a very good understanding of their customers' procurement needs, or the best-of-breed vendors would never have emerged. And with major companies having multiple ERP systems, or running multiple versions of a single ERP system, "It may actually be easier to integrate Commerce One as a best-of-breed solution than one of the enterprise suite solutions, because we've lived with the integration challenge from day one."
Wilkerson concedes that integration is, in the eyes of many CIOs, the greatest single obstacle they face, "but we're doing things that will make it easier, and some of those things will be contrary to the proprietary environments that the enterprise vendors wish to enforce."
Commerce One recently unveiled a new product suite that makes it clear that the company is now focusing more on developing and selling e-procurement and sourcing solutions for individual enterprises, and less on platforms for building public trade exchanges.
Yet Wilkerson is not ready to concede that the exchange platform idea is defunct. "Public trade exchanges were an idea before its time," he says, "but given the growth in automating ties to suppliers and the complexity of managing all those relationships, the exchange idea will be back."
Replenishment rules
Another species of SRM is focused around regular replenishment of direct materials, automating just-in-time or vendor-managed inventory (VMI) scenarios. These systems blend software functionality associated with SRM with the real-time integration associated with the term supply chain event management. This is the domain of vendors like Bedford, Mass.-based SupplyWorks; Southfield, Mich.-based SupplySolution, which focuses on the automotive industry; and RiverOne, Westlake Village, Calif.
One thing about this space, says Jeff Hermann, CEO of SupplyWorks, is that "because it is execution-oriented, the solutions become much more specific to a vertical industry."
For example, RiverOne, which focuses on the electronics industry, has solutions that cover the full product life cycle, from strategic sourcing to regular replenishment through VMI and other modalities, to allow original equipment manufacturers, electronics manufacturing services providers, and components manufacturers to visualize and respond to exception events in real time, then deliver executive-level business intelligence to ensure a closed-loop process.
As collaborative software applications, the suite simplifies request-for-quote distribution, bills of material generation, part number normalization, and strategic and tactical sourcing issues. Trading partners remain synchronized through sharing of forecast information in a single point of reference that's continuously updated.
It can be seen that SRM is evolving along the now-familiar pattern of planning and execution. Other examples include supply chain planning and execution. Thus, as AMR's Richardson says, "Yes, I think SRM is a real category. I'm not sure whether it expands to include product life-cycle management, supply chain management, or both; or whether we'll have to roll everything up into a four-letter acronym."
| For More Info: | ||
| Apexon: www.apexon.com | Commerce One: www.commerceone.com | i2 Technologies: www.i2.com |
| Manugistics: www.manugistics.com | Oracle: www.oracle.com | PeopleSoft: www.peoplesoft.com |
| RiverOne: www.riverone.com | SAP: www.sap.com | SupplySolution: www.supplysolution.com |
| SupplyWorks: www.supplyworks.com | ||
