IT Services E-Procurement

Despite retrenching in the dot.com world, analysts project business to business e-commerce to grow to a multi-trillion dollar market over the next few years. This market has driven the development of many e-procurement solutions. While most of these solutions focus on the optimization of the material supply chain, several solutions focus on the optimization of the service supply chain. Some focus specifically on optimization of the IT service supply chain. What are these solutions and how do they work?

The first step towards answering that question is to consider the concerns of the service supply chain stakeholders. These concerns shaped the current solutions.

On the buy-side the stakeholders include the service supply manager, the IT manager, and the organization's legal, finance and human resource functions. The IT manager is concerned primarily with access to quality service and the speed of the service acquisition process. The service supply manager is concerned with leveraging the organization's total buying power, managing the suppliers, and maximizing the efficiency of the entire service chain. The legal, finance, and human resource functions are most concerned with the administrative aspects of the transaction that fall within their scope of expertise.

The sell-side stakeholders include independent professionals, professional service companies and staffing agencies. The independent professionals are concerned with exposure to organizations that need their expertise, opportunities to bid on those organizations' projects, and being able to provide services that will minimize the administrative burden of running a small business. The professional service companies are concerned with knowledge of project opportunities, the length of their sales cycle, and client communication. The staffing agencies are concerned with finding new prospects, strengthening client relationships, and streamlining the service acquisition process.

The concerns of these stakeholders have shaped the various solutions and the different functionalities they offer. At a high level the solutions fall into two groups. The first group is the expert marketplaces. Though the functionality of these marketplaces varies, they each have a directory of suppliers and offer some degree of matchmaking. The second group is the service supply chain optimizers. The functionality of these optimizers also varies, but each attempts to maximize the efficiency of the service chain.


The core of each expert marketplace consists of a database of service suppliers. The basic value the expert marketplace delivers is access to this database and the capability to match an organization's needs to resources in the database.

Using these marketplaces is straightforward. You either directly search the database using some combination of criteria (e.g., skills, location) or you post your project requirements and interested suppliers respond with proposals. In either case, once you've identified a potential resource, you initiate discussion. Many marketplaces offer some degree of collaboration functionality that facilitates those discussions.

Table 1 provides a list of several expert marketplaces. Although all these marketplaces offer searching and matching, they do differ in focus and functionality. The first six marketplaces include a mix of professional services including some types of IT services. The last five marketplaces focus specifically on IT services.

Table 1.

Expert Marketplace	URL	Service Focus	Comments
ProSavvy	www.prosavvy.com	General	1700 prequalified firms. 160,00 registered users.
Guru	www.guru.com	General	470,000 users
Ants	www.ants.com	General	Over 100,000 members
Freeagent	www.freeagent.com	General	Mission: To help free agents achieve long-term wealth, success, and a balanced life.
Smarterwork	www.smarterwork.com	General	Global marketplace active in 8 languages with experts in more than 110 countries.
eLance	www.elance.com	General	Over 200,000 businesses and individual professionals from 140 countries registered.
Rent A Geek	www.rentageek.com	IT	Online source for independent computer professionals
HelloBrain	www.hellobrain.com	IT	Marketplace for sourcing technology solutions
NuAspect	www.nuaspect.com	IT	Software developers marketplace
Sourcexchange	www.sourcexchange.com	IT	Open Source developers marketplace
IT Radar	www.itradar.com	IT	Marketplace for IT services

The IT manager should understand that some of these marketplaces focus heavily on promoting the independent professional. Marketplaces like Guru, Ants, and Freeagent focus on the independent professional with each offering some mix of business support services. ProSavvy is an example of a more evenly focused marketplace with functionality that addresses concerns of both the buy and sell-side stakeholders.

Supplier qualification serves as a significant differentiator for several marketplaces. Smarterwork, eLance and ProSavvy all place a heavy emphasis on supplier qualification. Marketplaces such as Rent A Geek that function primarily as directories perform little or no supplier qualification.

Several marketplaces offer some type of competitive bid functionality. This ranges from collaboration functionality that facilitates proposal delivery to auction functionality. Ants, NuAspect and ProSavvy each offer competitive bid functionality.

A final differentiator is back end services. The primary example of this is billing and payment services. Smarterwork, eLance, and HelloBrain each offer some type of billing or payment service.

These marketplaces can provide access to previously unknown resources, but how well do they address the speed of the service acquisition process? Although they speed up some aspects of the service acquisition process, these marketplaces do not focus on the total service supply chain. You have to look at the service supply chain optimizer solutions for that.

These solutions focus on reengineering the total service procurement process. These solutions vary in focus and functionality, but they all attempt to optimize the basic service supply chain. From requisition to the payment process, these solutions look to streamline service procurement processes and provide organizations with the information they need to strategically manage their service suppliers.

Utilizing these solutions is a much greater undertaking than accessing expert marketplaces, but the potential benefits are far greater. Since theses solutions deliver the greatest benefit when utilized enterprise wide, organizations should assess their constraints prior to implementation. Implementation planning may require process redesign and organizational buy-in. Most of these solutions offer web-based implementations, but integration with the organization's existing enterprise should be considered. Consequently, if we're talking about process redesign and system integration work, we could be talking about a significant project.

Such projects can generate significant benefits. Companies with a contingent workforce in the 400-1,000 contractor range have realized annual savings in the millions of dollars by implementing these solutions. How do these solutions generate such savings? They generate them by automating service procurement tasks, by providing visibility into the organization's spending patterns and by enabling the monitoring of supplier performance.

Table 2 provides a list of Service Chain Optimizers. These solutions all attempt to streamline the service chain, but their focus and functionality vary. A review of the following characteristics will help to understand those differences.

* Business service focus

* Supplier network

* Matching function

* Requisition/RFP function

* Enterprise system integration

Table 2.

Company	URL	Service Focus	Comments
Uwork	www.uwork.com	General	Services e-procurement (SeP) Platform is a buyer-centric, supplier-friendly online platform that automates the entire process of buying, selling and managing professional services from purchase to pay.
Nitorum	www.nitorum.com	General	E-procurement application for acquiring and managing workforce suppliers. Originated from Merrill Lynch's efforts to automate its professional services procurement process.
Vivant	www.vwvant.com	General	Provides open marketplace to help hiring companies staff projects with contractor talent by matching their needs with firms or online services that represent contractors.
Chimes	www.chimesnet.com	General	Centralized Vendor Management (CVM �) is an e-Procurement Resource Acquisition Solution that manages the supply chain and all aspects of the ongoing staffing process.
CascadeWorks	www.cascadeworks.com	General	Clarity is a web-based hosted application that streamlines the complex processes involved in the procurement and management of contingent labor.
SkillsVillage	www.skillsvillage.com	General	Provides a blended model of applications and services across the entire procurement lifecycle for finding, hiring, and managing contract workers.
eWork Prosource	www.ework.com	General	7 modules providing a front-end sourcing and candidate management system combined with a back-end processing system
XiSource	www.xisource.com	IT	Solution facilitates the quality-centric, cost-effective and timely execution of IT service outsourcing.
CoFix	www.cofix.com	IT	Builds, hosts, and operates online marketplaces and exchanges for automated IT maintenance services procurement.
SolutionHub	www.solutionhub.com	IT	Procurement platform designed specifically for the buying and selling of complex software and Information Technology (IT) services
NeoIT	www.neoit.com	IT	Technology solution for the procurement, management, and delivery of IT services
Mirronex	www.mirronex.com	IT	MxConnect is an e-commerce hub that streamlines business-to-business transactions. Its first business focus is the IT outsourcing industry.
IQ4hire	www.iq4hire.com	IT	Brings together high-quality Buyers and Sellers of complex IT implementation projects.

The solutions listed in Table 2 exhibit one of two-business service focuses. They either focus on the IT service chain or the general service chain. The first seven solutions listed focus on the general service chain. Their functionality contains no IT specific characteristics, though it can be applied to the acquisition of IT resource.

E-Procurement Is Not Electronic Purchasing - Part II

This second part of an extended note on e-procurement examines the necessary steps after a business decision to go with e-procurement has been made based on the information and criteria covered in Part I.

E-procurement is an integrated system of services and technologies that provides a seamless bridge between buying and selling businesses. The e-procurement process begins at the planning stages within the buying company and extends through to the delivery and collections services of the selling company and the receipt and payment services of the buying company. E-procurement shatters walls, enhances controls, and eliminates time delays in the requisition to receipt process.

About This Note

This Technology Note covering the e-procurement is presented in two parts. The first part covers:

1. The Promise of E-Procurement

2. E-Procurement Myths and Reality

3. Preparing for an E-Procurement Initiative

The second part covers:

4. E-Procurement Architecture

5. Selecting an E-Procurement Partner(s)

6. Implementing E-Procuremen
Procurement automation begins with budgeting and ends with the retirement of capital assets or consumption of raw materials. Failure (or choosing) not to include any of the following dimensions of the process de-optimizes the investment at best and opens the process for subversion at worst. Following are features found in product offerings and customer requests with examples of what each function addresses.

1.

Budgeting - is the basis for Automated Expenditure Authorization for Cost Center-based controls and accounting. When a Requisition is either initiated by an authorized individual or authorized by one, the Procurement Engine should compare the Requisition against Budget Levels and other Authorization Rules then forward it to the supplier for fulfillment.

Budgeting services include:

* Expense items

* Capital items

*

Cost Allocation Rules

2.

Project Structure - is the source of Automated Expenditure Authorization project-related controls and accounting. It establishes approval and authorization routings that override or clarify normal budgeting processes. Where Project Accounting is employed, it also establishes the hierarchy of accounts that will be used to capture project costs.

Project Structure services include:
*

Expense items
*

Capital items
*

Cost Allocation Rules

3.

Purchase Contracting - establishes commitments and agreements between suppliers and buyers. Requisitions, Receipts, and Payments leverage Purchase Contract data to set up Purchase Orders and Validate Billing. Goods Receipt and Payments post attainment of purchase commitments and consumption of sale commitments.

Purchase Contracting deals with:
*

Quantity minimums
*

Commitment levels
*

Expiration dates

4.

Bid Management - involves a series of steps from Request for Information to Purchase and Post-Acquisition activities. These steps leading up to a Purchase Order are time consuming and highly prone to contention. Bid Management is concerned with:

* Request for Bid posting (Open and Directed)

* Supplier response posting

* Standard Terms & Conditions


5.

Approval & Automated Authorization - are two distinct process steps. Approval is a statement of concurrence that no known conditions exist to prevent authorization. Authorization empowers action. A combination of automated and manual intervention steps leads to commitment of a purchase order.

Approval services include:
*

Budget comparison rules
*

Authorization Rules
*

Approval Rules
*

Workflow
*

Escalation Rules
*

Bypass Rules
*

Exception Handling Rules

6.

Requisitioning - initiates the procurement process. The more simple and comprehensive this process is, the more useable and less subverted the entire process will be.

Requisitioning services include:
*

Catalog of standard goods, services and information
*

Standard kits
*

Alternative product selection assistance
*

Order amendment
*

Custom routing
*

Shipping, handling and delivery instructions
*

Price variance allowance
*

Delivery variance allowance
*

Cost allocation
*

Order consolidation and contingency

E-Procurement Is Not Electronic Purchasing - Part I

Buyers of e-procurement are looking forward to reduced inventories, lower procurement costs, lower product costs, shorter procurement cycle-time, higher (internal) customer satisfaction and higher value-add from procurement professionals. Suppliers of systems and services promise those benefits plus secondary cost reductions and efficiency improvements in enabling organizations as Finance and Inventory Control. Following is a compilation of benefits derived from case studies and supplier references.

Accounts Payable: obtained increased efficiency through reduced matching work, automated payment vouching and reduced invoice errors.

Treasury: reduced cash requirements through increase predictability.

Project Accounting: efficiency improved through automated posting of purchases and costs.

General Accounting: improved performance from automated invoice remittance, reduced use of general journal entries and more efficient audit and control activities.

Budget Performance: improved by including committed costs as they are recorded.

Receiving Department: efficiency improved as a result of less frequent matching problems and automated recipient locations as well as from being able to predict future workloads.

Inventory and Production Control: obtained higher accuracy and increased yield through more efficient inventory handling and production capacity.

Every business function that is involved in the procurement process from budgeting to requisition to receipt and payment must be engineered into a seamless system with an absolute minimum of inherent delays and maximum use of automated transaction handling.

About This Note

This Technology Note covering the e-procurement is presented in two parts. The first part covers:

1. The Promise of E-Procurement

2. E-Procurement Myths and Reality

3. Preparing for an E-Procurement Initiative

The second part covers:

4. E-Procurement Architecture

5. Selecting an E-Procurement Partner(s)

6. Implementing E-Procurement
E-procurement is an integrated system of services and technologies that provides a seamless bridge between buying and selling businesses. The e-procurement process begins at the planning stages within the buying company and extends through to the delivery and collections services of the selling company and the receipt and payment services of the buying company. E-procurement shatters walls, enhances controls, and eliminates time delays in the requisition to receipt process.

New Partnerships Add to Remedy's E-Procurement Strengths

Remedy Corporation (NASDAQ: RMDY), a supplier of a range of service management and infrastructure applications, announced two partnerships that are intended to enhance its e-procurement offering. Remedy will embed technology from Requisite Technology, Inc. into Remedy's e-procurement product Purchasing@Work. Requisite offers a patent-pending search engine BugsEye� and catalog management tool, eMerge�. Requisite's technology also appears in products by Oracle and SAP, among others.

Remedy has also partnered with FutureNext Consulting, Inc. FutureNext is a mid-market systems integrator specializing in e-commerce. FutureNext will integrate Purchasing@Work into its consulting practice and provide implementation and best practices consulting to Remedy customers. It also has partnerships with Ariba and Concur.
Each of these partnerships is an incremental addition to Remedy's total offering in the e-procurement arena. Neither provides a unique capability but the combination adds polish to Remedy's relatively new e-procurement product. Of the two, the partnership with FutureNext will probably be more important as it will bring Purchasing@Work into more product selections and turnkey implementations.

An important extra for both programs is that they will help Remedy support its Guaranteed@Remedy rapid implementation program; FutureNext will contribute as an implementation vendor, while Requisite, by offering access to its eLeader collection of pre-configured catalogs and suppliers, will make it easier for Remedy to bring customers to the point where they can make their first meaningful use of their new product.

'Collaborative Commerce': ERP, CRM, e-Procurement, and SCM Unite! A Series Study

In the early 90's, ERP came of age. Everyone had to have the functionality ERP packages promised. Since then, as Web and Internet technologies have matured, CRM on the front end, and e-Procurement and Supply Chain Management on the back end, have come into their own.

Now in 2001, the catchphrase is "Collaborative Commerce," where we unite all of the above elements into one coherent system within and between organizations. This is the Big Kahuna, the zero latency, fully transparent, 360 degree exposure that is the stuff systems integrators dream of. Is it here? Are the technologies mature enough? Simple enough?

This, the first of a series of articles on Collaborative Commerce (C-Commerce), examines what it is and can be. Additional articles in the series will look at the initial efforts of the leaders in this game; namely, the big ERP vendors, including SAP, J.D. Edwards, Baan, IFS, Oracle, and PeopleSoft.


Let's review the very high level attributes of both ERP and CRM systems, in order to set us up for evaluating the state of various vendor C-Commerce solutions.

ERP

Enterprise Resource Planning, which came into its own in the early 90's, is typically comprised of the following key high-level components:

* Manufacturing and Logistics

* Finances and Accounting

* Human Resources and Payroll

For a complete definition of the scope of ERP, please refer to the article: Essential ERP: It's Functional Scope.

ERP has extended backward, outside the organization through e-Procurement (electronic Purchasing) and Supply Chain Management (Distribution and Inventory Management).

CRM

Customer Relationship Management, which has followed on the heels of ERP and is just now coming into its own, can be thought of to comprise the following key high-level components:

* Sales Force Management (SFA)

* Enterprise Marketing Automation (EMA)

* Customer Interaction Center (CIC) - formerly called Customer Service; now with a broadened scope.

* e-CRM

* Field Force Automation (FFA)

* Professional Services Automation (PSA)

* Partner Relationship Management (PRM)

* Analytics

e-Procurement Is Not Electronic Purchasing - Audio Conference Transcript

When my grandmother needed heating oil, ice, produce or milk, she placed the appropriate card in the front parlor window and when the delivery service came by, they rang the door bell, took the order, made the delivery, got paid and left.

On the other hand when a client at a large media and entertainment company needed a tablet of paper, she called her administrator who wrote a purchase requisition, brought it to her for approval and sent it to the division controller who batched it and sent it to purchasing where the MRO (Maintenance, Repair, and Operations) buyer batched it, summarized quantities of common items then called the supplier to place the order. The buyer then made copies of the purchase requisitions and sent them to mail room. The supplier boxed up the goods and delivered them to the mail room where they were matched up against the copies of purchase requisitions, bagged and loaded into mail bins for the journey through the walls to the mail room on the administrator's floor. The supplier meanwhile sent an invoice which the mailperson checked against the purchase requisition, initialed the purchase requisition and sent it to Accounts Payable. At Accounts Payable, the Purchase Requisitions were matched with the Purchase Order and the supplier was paid forty-five days later.

Seven days and $150 dollars of handling later, the Tablet of Paper arrived. This is not a pretty picture. But it is not the entire story either. While this person waited for her tablet, hundreds of other employees were drawing from 'office stocks' that had been hoarded over the months and hundreds more were stopping by The Office Superstore on the way back from lunch and submitting Expense Reimbursement Vouchers to Accounts Payable for the same types of materials.

My grandmother had three suppliers and four items to buy and she barely had to leave her rocking chair. How can a company connect 20,000 employees with 10,000 suppliers and 200,000 items?
The first order of business recommended by the Selection Consultant was to simplify:

1. Reduce the number of items by standardizing on 10 pens and 5 tablet colors

2. Reduce the number of suppliers through consolidation

3. Provide the employees with a catalog that is easy to navigate

4. Provide an Order Form that is Faxed directly to the Supplier

5. Have the suppliers package items for delivery directly into the mail system

6. Eliminate the Purchase Requisition / Purchase Order Match

This alone reduced MRO Spend both through unit cost reduction, purchase order count reduction and reduced (measured) time spent by all parties. Thankfully, Requisition Volume did not increase (at least in the short run). At $85 per Requisition, there was still a lot of room for improvement. Automation came next.

The chosen approach was to build the catalog and order forms on the corporate intranet and duplicate the rest of the process. That yielded $65 unit cost reduction. New goals were set to hit:

1. Two day cycle time (Requisition to Receipt of Goods)

2. $25 per Requisition

3. Greater than 50% reduction in 'office stocks'

4. An additional 5% Cost of Materials reduction

These goals defined the Business Level Requirements of an e-Procurement Solution.

Next Operational Requirements had to be set:

1. An average of 30 seconds to locate an item on the catalog

2. An average of 1 minute to locate and Request an item that had previously been Requested

3. On line feedback to Procurement and Suppliers regarding item quality and delivery service

4. Real-time authorization

5. �

There were more than 30 suppliers to consider but key choices reduced the count quickly to 8.

Note, some of the original suppliers did not have the ability to meet key requirements such as:

1. Integration with Financial Accounting Systems

2. Ability to Buy to Stock and Charge at Issue to employee

Also note that this was a while ago, but more on this in a bit.

Technical review of the eight candidates and assessment of internal support needs revealed tremendous differences:

1. The complexity of making multiple suppliers fulfilling a single Requisition seem transparent to the employee ranged from simple to prohibitive.

2. Ability to track workflow including activities at the suppliers facilities and during transport of goods varied widely.

3. The catalog, the catalog and more about the catalog.

credit Accounting Firm with E-procurement Initiative

As a $17 billion company, privately held PricewaterhouseCoopers has tremendous leverage when it goes to the marketplace to make purchases. Now the company is offering to share that leverage by creating a purchasing consortium. Its new e.conomy marketplace will offer members the ability to purchase products, services, travel and software. It will also cover best practices, contract negotiation, and other content areas. The marketplace was launched in the United States and will expand to Canada, Europe and countries in Asia and the Pacific early next year.
Like the similar announcement by TD Bank of Canada (See TEC News Analysis article: "Bank is First Mover in Canadian E-Commerce" December 27th, 1999), PricewaterhouseCoopers is taking the position that anyone can create a marketplace. While the largest financial consulting firm is hardly "anybody," what we see here is the beginning of a flood of similar ventures from companies of all kinds, including similar consulting companies, banks, other large companies with purchasing leverage, and potentially anyone else. Look for a lot of confusion at the beginning of 2000, with some serious shakeouts near the end.

New Dimensions in EC and SCM Part 3: E-Procurement Can Broaden the Supplier Pool

Every business is a purchaser as well as a supplier, with many routinely processing hundreds of buying activities daily. Typically, purchases represent 50 to 90% of a company's cost structure — making procurement strategy and execution a critical lever for effective supply chain operations and superior business profitability.

Electronic commerce offers exciting new possibilities for businesses to improve their performance on this important "upstream" supply chain activity, both for indirect or support items and, increasingly, for materials that are direct components of the products and services that businesses make and sell.

As in many areas of e-commerce, the wide variety of alternatives can be confusing. This article outlines some of the major recent developments in e-procurement and the important strategic and tactical choices that companies need to make in order to answer these questions and to take full advantage of new "buy" side e-commerce developments.

This part discusses how e-procurement can Broaden the Supplier Pool and the pros and cons of this approach to procurement.


Objective: Broadening the Supplier Pool
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* Plethora of horizontal and vertical marketplaces makes comparison shopping easier.

* Don't expect to get the best prices just cruising the Web.

* Repeated switching of suppliers to chase lowest prices can be hard to manage and cause other problems that offset savings.

Broadening the Pool of Suppliers Discussion

Typically, a 1% improvement in the overall cost of purchased materials and services can increase a company's bottom line by 10 to 20% or more — a dramatic impact on profitability and shareholder value. It is no wonder a wide variety of e-procurement solutions have been developed to help companies access a broader range of suppliers and achieve price and service improvements.

This has quickly become a crowded and confusing area, with trade magazines and television ads touting the benefits of alternative Internet sites and start-ups that have emerged to improve the process of bringing buyers and sellers together in a more competitive way. These marketplaces or exchanges offer a defined set of materials and services from a number of different suppliers, where you can view and compare supplier catalogs and price lists, seek supplier quotations for specific needs, and make supplier selection decisions.

These services are typically organized in one of two ways:

* Horizontal marketplaces focus on product lines that companies in a number of different industries utilize, such as Maintenance, Repair, and Operations (MRO) items, office products, and capital equipment. As well, there are sites that focus exclusively on categories of purchased services that have become increasingly important in today's economy — information technology, shipping, management consulting, and others.

* Vertical marketplaces are designed to meet the unique needs of particular industries - plastics, high-tech, and automotive to name a few. Here, you can access information and pricing from suppliers of resins, integrated circuits, castings, and a broad range of other parts and components used extensively in your specific industry. Exchanges have also developed to cover excess inventory, used equipment, and other items and types of transactions that historically have been particularly inefficient or time-consuming.

The primary e-procurement benefit of these marketplaces is that they facilitate much easier comparison shopping. The substantial legwork that used to be required to identify potential new suppliers, understand what they offer and obtain price quotations from them now can often occur in a matter of minutes. In an increasingly global economy, it has become more and more important for companies to find and use appropriate suppliers anywhere in the world, and e-procurement marketplaces provide a valuable method for increasing the access to these new potential supply sources.

These marketplaces and exchanges initially focused mostly on indirect materials and support services, since they were arguably the items that are critical to a business and least risky to buy through these new methods. However, there has been a rapid expansion of categories that are covered, and now just about anything a business needs, including critical raw materials, components, subassemblies, and even basic commodities such as fuel and agricultural products can be bought using horizontal or vertical exchanges.

E-Procurement Is Not Electronic Purchasing - Part I

Buyers of e-procurement are looking forward to reduced inventories, lower procurement costs, lower product costs, shorter procurement cycle-time, higher (internal) customer satisfaction and higher value-add from procurement professionals. Suppliers of systems and services promise those benefits plus secondary cost reductions and efficiency improvements in enabling organizations as Finance and Inventory Control. Following is a compilation of benefits derived from case studies and supplier references.

Accounts Payable: obtained increased efficiency through reduced matching work, automated payment vouching and reduced invoice errors.

Treasury: reduced cash requirements through increase predictability.

Project Accounting: efficiency improved through automated posting of purchases and costs.

General Accounting: improved performance from automated invoice remittance, reduced use of general journal entries and more efficient audit and control activities.

Budget Performance: improved by including committed costs as they are recorded.

Receiving Department: efficiency improved as a result of less frequent matching problems and automated recipient locations as well as from being able to predict future workloads.

Inventory and Production Control: obtained higher accuracy and increased yield through more efficient inventory handling and production capacity.

Every business function that is involved in the procurement process from budgeting to requisition to receipt and payment must be engineered into a seamless system with an absolute minimum of inherent delays and maximum use of automated transaction handling.

About This Note

This Technology Note covering the e-procurement is presented in two parts. The first part covers:

1. The Promise of E-Procurement

2. E-Procurement Myths and Reality

3. Preparing for an E-Procurement Initiative

The second part covers:

4. E-Procurement Architecture

5. Selecting an E-Procurement Partner(s)

6. Implementing E-Procurement
E-procurement is an integrated system of services and technologies that provides a seamless bridge between buying and selling businesses. The e-procurement process begins at the planning stages within the buying company and extends through to the delivery and collections services of the selling company and the receipt and payment services of the buying company. E-procurement shatters walls, enhances controls, and eliminates time delays in the requisition to receipt process.

Myth	Reality
It is a Purchasing Function	It impacts every function in the enterprise. It extends to suppliers and may introduce new suppliers and / or new roles for existing suppliers such as banks and logistics companies. In most cases, financial control procedures and commitment policies will have to be adjusted. In many cases, project management and departmental procedures will have to be adjusted. Failure to adjust policies, procedures, and processes; and to create a new operating model for procurement will negatively impact investment payback.
Everyone can use the Web interface	Finding a product in a catalog is not as simple as finding one through a person. Buyers translate written requests into supplier-speak and suppliers then translate these requests into their products. Catalogs lack this intelligence, demanding careful attention to create an intuitive catalog.
Catalogs are easy to build	Each supplier will provide data and images in different formats. Some of them will not have the material readily available for use. Some suppliers will use different product numbers in their electronic gateway from those used in printed catalogs. Pricing negotiations will be required to maximize catalog stability. Suppliers that serve multiple industries will use different terms for the same product.
Systems can be purchased	Only some components can be purchased. The remainder of the system must be cobbled together from tools provided with the purchased product and additional products that are necessary to interface with existing systems. Failure to create essential interfaces will bog down the e-procurement process or it will create new work for people who must manually transport or transcribe data.
Suppliers are ready	Many suppliers are not equipped to participate in an electronic procurement process. They will have to make custom interfaces and in some cases will simply decline to participate. Some suppliers will prefer to work only through marketplaces that they either currently or plan to belong to. Those relationships may use interfaces that are incompatible.
Purchasing surrenders control	The business rules and catalog capabilities of e-procurement provide procurement professionals with capabilities that they never had before. By focusing attention on rules, product selection, and supplier management, the procurement function can achieve unprecedented control with far less imposition than could be achieved with manual systems. It is critical that this control be phased-in to allow the 'one-off' transactions to flow faster than before and to allow the 'maverick buyers' to show up on the exception reports and be dealt with through management intervention. This is important to avoid having the 'imposition' be interpreted as a system fault.
Purchase price will go down	Optimizing the end-to-end process will often lead to higher prices for some items due to supplier selection criteria that maximizes total procurement cost at the sacrifice of individual product cost. Reducing the number of invoices, negotiations, payments, receipts, and system interfaces will offset higher individual product costs in a well implemented system.
Total supplier count will be reduced	This is not necessarily the case. When Request for Information and Request for Proposal processing is automated, more suppliers can be canvassed and employed with lower total cost. This is due to the transfer of non-value adding work done by procurement professionals to value adding work.

New Dimensions in EC and SCM Part 5: E-Procurement for Process Improvement

Every business is a purchaser as well as a supplier, with many routinely processing hundreds of buying activities daily. Typically, purchases represent 50 to 90% of a company's cost structure - making procurement strategy and execution a critical lever for effective supply chain operations and superior business profitability.

Electronic commerce offers exciting new possibilities for businesses to improve their performance on this important "upstream" supply chain activity, both for indirect or support items and, increasingly, for materials that are direct components of the products and services that businesses make and sell.

As in many areas of e-commerce, the wide variety of alternatives can be confusing. This article outlines some of the major recent developments in e-procurement and the important strategic and tactical choices that companies need to make in order to answer these questions and to take full advantage of new "buy" side e-commerce developments.

This section deals with how e-procurement can lead to Process Improvement and How to Get Started.
Every business is a purchaser as well as a supplier, with many routinely processing hundreds of buying activities daily. Typically, purchases represent 50 to 90% of a company's cost structure - making procurement strategy and execution a critical lever for effective supply chain operations and superior business profitability.

Electronic commerce offers exciting new possibilities for businesses to improve their performance on this important "upstream" supply chain activity, both for indirect or support items and, increasingly, for materials that are direct components of the products and services that businesses make and sell.

As in many areas of e-commerce, the wide variety of alternatives can be confusing. This article outlines some of the major recent developments in e-procurement and the important strategic and tactical choices that companies need to make in order to answer these questions and to take full advantage of new "buy" side e-commerce developments.

This section deals with how e-procurement can lead to Process Improvement and How to Get Started.
* New e-procurement providers can help you apply a full range of strategic sourcing "best practices" through the Internet

* Most comprehensive approach, but also requires greatest discipline and management support

* Does not replace working with suppliers the old fashioned way on continuous improvement and other key aspects of relationship

Process Improvement Discussion

While outsourcing is a broad business trend today and can be used effectively for procurement, as discussed in Part 4, many companies continue to be interested in improving their own internal capabilities to strategically manage their supply base and execute programs that drive down costs and increase service and quality levels. For them, the relationships with suppliers are considered to be an important element of their overall business success, and they are reluctant to hand them over to a third party - even if doing so would help them leverage volume or otherwise reduce costs.

Historically, companies have turned extensively to management consulting firms to help them understand and apply best practices within their purchasing departments. Normally, the consulting team begins by assessing the company's situation and improvement potential, and develops a set of customized strategies and action plans. Subsequently, the consultants work jointly with purchasing staff on a set of "pilot" spending categories to execute the improvements and provide training in new techniques, which the client is expected to use on an ongoing basis without additional consulting support.

While it sounds good in theory, and has often provided a strong short-term payback, many companies are finding that institutionalizing these improved strategies and purchasing techniques is a major challenge. Achieving the benefits typically involves applying a disciplined and complex methodology that includes substantial internal data gathering and external market research, extensive use of analytical and scenario modeling tools, in-depth strategy development and planning, and disciplined execution by a staff team that is devoted exclusively to the effort - what is typically called a "strategic sourcing" program.

Since the level of effort and discipline required by strategic sourcing is often difficult to sustain once the consultants are gone, purchasing procedures sometimes revert back to traditional ways of doing business and the bottom line gains are not maintained, both reducing value to the client and undermining the reputation of the consultants.
New players in e-procurement have emerged to address this situation as well, offering Internet-based tools and processes that give users the ability to access and apply best practices tailored to their specific situations and that allow users to remain fully in control of their own procurement activities.

For example, B2eMarkets, Inc., offers users a Strategic eSourcing Management solution that walks online users through each step of a consulting-type procurement methodology, including gathering data, analyzing requirements, and setting strategy, as well as executing e-procurement through shopping e-marketplaces, conducting reverse auctions, and using other methods that are built into the application. Based largely on the strategic sourcing approach used by Accenture (formerly Andersen Consulting), one of the largest firms in procurement consulting and an investor in the company, the subscription-based service includes industry and commodity templates, evaluation tools, "coaching" and related on-line support.

Initial results from using this approach to e-procurement have been impressive. Across about $400 million in spending volume, B2eMarkets' customers have achieved cost reductions averaging 25%, and have achieved them in about half the time of traditional strategic sourcing processes.

Epicor's Mid-Market Pitch Becomes Higher For (One) Scala Part Five: More Challenges

Epicor Software Corporation (NASDAQ: EPIC) and Scala Business Solutions (formerly Euronext: A.SCALA), an Amsterdam, the Netherlands-based provider of collaborative enterprise software for mid-size enterprises and subsidiaries of global corporations, have completed a merger that began in late 2003. The merger creates the largest independent global mid-market provider of collaborative ERP, customer relationship management (CRM), and supply chain management (SCM) applications based on Microsoft's .NET platform and Web services, with approximately $250 million (USD) annual revenues, nearly 1,500 employees, and with over 20,000 customers. The combined company hopes to expand its global presence with worldwide coverage of sales, consulting, and support for mid-market and large multinationals as well as local enterprises, offering a broad suite of integrated solutions.

The situation may become even more complex in Epicor's Manufacturing Solutions Group, which contains 6,500 of Epicor's 20,000 customer base, and which, as mentioned earlier on, features Vantage (for new business opportunities), Manage 2000, and Avant� as its major mid-market ERP products and Vista for smaller discrete manufacturers. As for specialization, Vantage remains the preferred system for MTO, job shop enterprises, while Avant�, which has not been actively marketed in the U.S. since 1999, leans towards complex manufacturing and project work environments as well as towards repetitive manufacturing with one of its product variants; Vista, on its hand, is the low-end product for much smaller discrete manufacturing enterprises.

However, even with this simplified product set, Epicor still has a substantial rationalization and abridging job to do. For example, the vendor has to utilize open database technology to provide flexible, yet integrated enterprise business applications. Namely, Vantage and Vista, developed on a single framework, are designed for Progress Software Corporation's Progress RDBMS, but they are also available on the Microsoft SQL Server .NET Enterprise Server platform, while the Avant� product leverages UniData (a.k.a. U2) open database technology from IBM Corporation.

Thus, the above-described product roadmap strategy within Vantage 8.0 calls for a common platform that has a single layer of business logic and multiple UIs that sit on top, letting manufacturers migrate from their current installations at their comfortable pace. Epicor first delivered on the new roadmap with the early 2003 announcements that its Vista 6.0 and Vantage 6.0 enterprise systems now share that common platform, with UIs and workflows tailored to the markets they serve (see Epicor Reaches Better Vista From This Vantage Point). At the same time, Epicor rolled out the product strategy and roadmap to all of its manufacturing customers, thereby sharing the vision of how all products (Avant�, DataFlo, Manage 2000, and ManFact) would fit into the future constellation, including plans to continue development on those solutions releasing new upgrades every 12 to 18 months based on customer feedback. Logically, Vantage and Vista have taken the front seat as the solutions for new business, owing to their sexier technological foundation.

While the long awaited porting of Epicor's flagship products onto Microsoft SQL Server and Progress as well as continued focus on .NET framework should significantly relieve the company's R&D burden (the vendor spends 12 percent of its revenues on R&D, and has over a quarter of its total headcount in R&D), create incremental revenues opportunity in coming years and improve its general competitiveness, the remaining work of delivering single .NET compliant application framework remains major. At best, 80 percent of current install base will be covered by the first release of Vantage 8.0—namely, the earlier users of Vantage and Vista, whose migration (or mere "cherry picking" of new Web service-based enhancement) should be reasonably painless.

Epicor's Mid-Market Pitch Becomes Higher For (One) Scala Part Four: Merger Synergies and Challenges

Epicor Software Corporation (NASDAQ: EPIC) and Scala Business Solutions (formerly Euronext: A.SCALA, delisted in July 2004), an Amsterdam, the Netherlands-based provider of collaborative enterprise software for mid-size enterprises and subsidiaries of global corporations, have completed a merger that began in late 2003. The merger creates the largest independent global mid-market provider of collaborative ERP, customer relationship management (CRM), and supply chain management (SCM) applications based on Microsoft's .NET platform and Web services, with approximately $250 million (USD) annual revenues, nearly 1,500 employees, and with over 20,000 customers. The combined company has an expanded global presence with operations and customers in 143 countries, including worldwide coverage of sales, consulting, and support for mid-market and large multinationals as well as local enterprises, offering a broad suite of integrated solutions.

If for nothing else, the acquisition should result in minor functional overlap or possible adversarial internal competition between the respective product lines and target industries, while producing at least the following two apparent synergies between the two merged companies

1) geographical coverage—Epicor has a strong presence in the US, where Scala has never succeeded to develop an infrastructure, while Scala can provide a conduit for Epicor's entry into many Eastern European and Asian markets that it could ill-afford to tackle alone (whereas in some regions like the UK, Australia-Pacific, or South Africa the vendors can join existing force and possibly rationalize them, with resulting operational synergies), and

2) the strong relationships that both independently have with Microsoft.

Namely, Microsoft recently acknowledged Scala as one of its most important partners when Scala was selected as one of fourteen European independent software vendors (ISV) to participate in Microsoft's early adopter program for the emerging business application platform, code-named Microsoft Business Framework (MBF). This means that Scala might be able to accelerate delivery to market of additional iScala functionality in the coming years in response to possibly strong customer demand. With the support for XML and Microsoft BizTalk Server, Scala offers e-commerce applications that are tightly integrated to the Scala back-office, as well as the interconnectivity to third-party products. The Scala Connectivity solutions architecture (that includes iScala Data Exchange Server and the iScala Manager) provides a way of directly remotely accessing the functionality within the ERP system, in such a way that does not compromise its business rules and security. Scala has already released support (i.e., exposed through XML web services) for over sixty of the most common business processes and documents, including orders, delivery documents, invoices, etc., and is regularly releasing more.
On the other hand, Epicor has embraced .NET even more zealously than its creator Microsoft, often leaving Microsoft staffers in their development labs with their dropped jaws. As a good example, over two years ago, the vendor released Clientele CRM .NET as a pure .NET-based product (see Epicor Claims the Forefront of CRM.NET-ification). Further, at the company level, Epicor's standardized technology direction currently embraces the Microsoft .NET Platform for XML-based Web services. Through .NET, which is the next generation of Microsoft's Distributed interNet Applications Architecture (DNA) and Component Object Model (COM), the vendor hopes to be able to provide comprehensive support for Web services deployment and enterprise application integration (EAI).

This technology strategy should enable Epicor's still diverse development teams to leverage Microsoft technology, while allowing each product group to continue using the individual databases and development tools appropriate to the requirements of each product's target market. For example, with the release 6.0 of both the Vantage and Vista manufacturing products early in 2003, Epicor executed on a critical milestone of its manufacturing product roadmap—incorporating a single application framework across the two solutions through the alliance with Progress Software Corporation, as well as with Sonic Software Corporation for its enterprise service bus for transactions services and security.

Furthermore, in late 2004, Epicor will introduce its .NET-based Vantage 8.0 manufacturing solution (formerly code named Project Sonoma), which features an n-tier architecture that has been architected from the ground up to support the .NET platform and Web services. Rather than wrapping existing applications with Web service-like interfaces, the new Vantage and Vista presentation layer has completely been rewritten in C# and Visual Studio.NET, while the extensive business logic has been preserved and wrapped around with stateless Web services (i.e., which are connected or invoked only when the information is needed).

The platform will supposedly deliver unrivalled flexibility and performance for both developers and customers, and allow for the development of applications based on Web services that have either a smart client or browser-based UI. Version 8.0 will include frameworks for exposing all applications interfaces as Web services, plus an orchestration engine for constructing composite applications using both Microsoft BizTalk Server and Sonic. The solution aims at enabling all (both existing and future) Epicor manufacturing customers to adopt Web services piecemeal, on their own time frame, while protecting the existing technology investment, since software reuse and integration have been on Epicor's mind during the software revamp.

Also at the corporate level, the vendor has incorporated numerous features into its UIs to simplify the operation of and access to all its products, which incorporate the popular Microsoft Windows graphical user interface (GUI). Epicor's GUI tools include industry-standard field controls, pull-down menus, tool bars, and tab menus that facilitate the use of the software, while the products incorporate the latest and most advanced GUI features such as process wizards, cue cards, advanced on-line help, and on-line documentation, based upon today's single document interface (SDI) standards. As the model for distributed computing continues to evolve through the advent of Internet technologies, Epicor also offers additional client deployment models, including thin-client, browser-based, and mobile client access.

Therefore, Epicor has lately created three diverse and yet streamlined product lines (i.e., Epicor Vantage, Epicor iScala, and Epicor Enterprise) that cover different industries (i.e., distribution, industrial, manufacturing, services, non profit, and hospitality verticals) with a minimal overlap, which should mean more opportunities without much clash amongst different sales forces. Epicor is striving to become a cross-trained, functional organization, given some cross-selling opportunities in hospitality, as well as localization of manufacturing with Scala accounting and payroll solutions. However, the other side of the coin is that because of these seemingly unrelated product lines, Epicor may mean different things to different people, which does not really help mind share creation in particular segments of interest.

Epicor, as well as its product groups, have had a share of tough history that they now must get far beyond to gain traction in the market. For example, first DCD, then DataWorks, and then Epicor's Manufacturing Solutions Group, the reborn manufacturing group must remind its customers and the marketplace of its historic success and forget about so many years of financial pressures which nearly sunk it into oblivion. There would be an analogy with the Epicor Enterprise Solutions group, that started as Platinum, and has meanwhile been awkwardly and confusingly till recently referred to as the "e by Epicor" umbrella brand. Consequently, since the late 90's Epicor's business has been less visible to the market, and customers and the marketplace may have forgotten who Epicor Manufacturing or Epicor Enterprise are and what they represent. The positive industry coverage for the last two years for its plausible strategy, modern products, and record performance are certainly a great step in the right direction.

Epicor's Mid-Market Pitch Becomes Higher For (One) Scala Part Three: Market Impact

Epicor Software Corporation (NASDAQ: EPIC) and Scala Business Solutions (formerly Euronext: A.SCALA), an Amsterdam, the Netherlands-based provider of collaborative enterprise software for mid-size enterprises and subsidiaries of global corporations, have completed a merger that began in late 2003. The merger creates the largest independent global mid-market provider of collaborative ERP, customer relationship management (CRM) and supply chain management (SCM) applications based on Microsoft's .NET platform and Web services, with approximately $250 million (USD) annual revenues, nearly 1,500 employees, and with over 20,000 customers. The combined company hopes to expand its global presence with worldwide coverage of sales, consulting, and support for mid-market and large multinationals as well as local enterprises, offering a broad suite of integrated solutions.

Thus, Scala, with main direct office coverage in Europe and the Far East, and through its network of partners and dealers in most remote, esoteric, and still low-penetrated markets, perfectly fits the description of an ideal Epicor supplement. Another factor that may bode well for its future as Epicor's subsidiary is its vast international coverage, and a broad geographic revenue mix (over 4,500 customers with over 7,500 sites worldwide), which not many (if any) peer vendors can tout. Scala has offices in over thirty countries, with local distributors increasingly helping out the direct sales force, whereas the vendor has continued to offer its products and services through the reseller channel and value added resellers (VAR), which has also expanded lately, with 54 percent license revenue growth in 2002 and with a 34 percent growth in number of partners amounting to over 140 partners worldwide.

The above facts have long promoted Scala into a serious challenger in the mid-market, especially in emerging markets like Central and Eastern Europe, Middle East, and China (possibly the local market leader therein following up on the early entry in the 1980s). The former flagship Scala 5.1, a mature but less technically apt ERP product suite, has traditionally covered the full spread of core ERP modules, including logistics, manufacturing, financials, project management, and service management, with the indication of high levels of customer satisfaction. Like SYSPRO, its parent-to-be Epicor, Intuitive Manufacturing Systems, and Exact Software, Scala's functionality is equitably solid in accounting, manufacturing, and material management areas. This is an advantage compared to competitive products that are either mainly strong in accounting (e.g., Microsoft Business Solutions [MBS], Sage/Best/ACCPAC, Coda, Systems Union/SunSystems, Unit 4 Agresso, etc.) or in manufacturing or distribution (e.g., Lilly Software, SoftBrands, Made2Manage, or QAD).
At the beginning of 2000, Scala began redesigning its ERP software and building a new platform specifically for on-line collaboration. It has meanwhile packaged together the functionality required in one standard software system, which means a business can begin collaboration with its subsidiaries, customers, partners, and suppliers. To that end, iScala 2.1 was the successor product to Scala 5.1, since it contained all of the basic ERP functionality that was available in Scala 5.1 in addition to the collaborative capabilities inherent to the new XML Web services-based design. Scala 5.1 was withdrawn from new business sales in December 2002, although existing customers will continue to receive support well into the future.

Like its predecessor, iScala 2.2 also comes in two flavors to satisfy needs of both local medium business and of smaller global corporations (and their subsidiaries, divisions, and suppliers). The iScala Business Server is an entry-level product—a collaborative ERP package for the medium-size stand-alone business needing core ERP functionality without a need for high scalability and advanced security, and as a first step towards automating business processes across applications and with customers or suppliers systems. iScala Enterprise Server, on the other hand, is designed as a more complete collaborative ERP package for medium-size multinational companies or for the subsidiaries and divisions of larger enterprises. It has all the functionality of the iScala Business Server but adds scalability, business centralization capabilities, and support for working across and supporting multiple sites and subsidiaries.

Thus, Scala prefers not to be simply perceived as a mid-market vendor per se, as it rather targets two somewhat distinct mid-market segments:

1) mid-size units,divisions, or subsidiaries of large corporations, and

2) independent mid-sized enterprises, where Epicor's sweet spot has also primarily been so far. There are slight variations in the needs of these two mid-market types, since the corporate divisions typically have urgent connectivity needs such as processing multinational invoices, using integrated warehouse systems, or triggering automatic purchase and sales orders.

Accordingly, Scala has long featured possibly the unique multilingual capabilities of its Collaborative ERP software. Scala maintains a single set of application code for all its languages—more than thirty—compared to other vendors who commonly support different software versions for different languages. Scala's product architecture, which enables a single version of the software to support multiple languages, means global companies can keep their maintenance costs down by, for example, running a single service center to support several countries. It also gives them flexibility to manage their global business more easily in a multilingual and multicultural environment, since Scala also provides telephone support in over fifteen different languages to support local users worldwide.

To ensure that every new product is multilingual from the start of its life cycle, translation into different languages is done in the software development process on a phrase-by-phrase basis to give accurate meaning in multiple languages. The multilingual capabilities are enhanced by the new Unicode technology that is used starting with iScala 2.1, allowing the combination of any languages with different characters in a single installation. True multilingual technology like Unicode also allows a wide range of languages such as Chinese, Russian, or Arabic, to be stored, displayed, and printed on the same page or even in the same field. The technology also gives Scala a significant technical advantage in that new developments and maintenance updates to Scala software only have to be developed in a single version, whereas Scala's competitors typically have to maintain multiple versions, one for each language.

Consequently, having long focused on the upper end of the ERP mid-market, Scala has apparently demonstrated an understanding of this market's dynamics and its pragmatic requirements of robust multinational corporate functionality and intra-enterprise visibility within a fairly inexpensive product, fast and simple implementations, and reliable service and support. The company has struck the value proposition of balancing business processes standardization with flexibility and autonomy of remote subsidiaries, which should come in handy for Epicor's like forays.

Global companies should appreciate iScala's features such as simultaneous support for multiple accounting standards, enhanced security and usability features, and remote administration tools to manage distributed or local installation, which can often match or exceed the tier one vendors' capabilities. Many other peer vendors conversely require their customers to operate in a single language at each location because their applications are based on the technology unable to hold more than one language in the same system.

With recently increased business functionality, comprehensive integration, and connectivity capabilities coupled with a brand new flashy UI, iScala 2.2 might be an attractive choice for companies who are considering upgrading or buying a new ERP system. There might be no similar product that provides companies with consistent information, a global view of the business, one view of customers or suppliers, and reasonably rapid system deployment at the same time.

While tier one enterprise systems can cope with the complex needs of centralized functions and a large number of users, they are often not well-suited to handling the less complex needs or localization requirements of a branch or sales office in remote countries. Hence, Scala (and now Epicor too) wants to cohabit with these global players by providing systems for subsidiaries and regional offices of global enterprises. Scala's argument would be that it is simply too expensive and time consuming to keep changing a rigid tier one product to suit a changing market, even if it could be deployed in a location where often the poor telecommunications infrastructure capability would prevent a web-deployed system from being used.

Epicor's Mid-Market Pitch Becomes Higher For (One) Scala Part Two: How Scala Complements Epicor

Epicor Software Corporation (NASDAQ: EPIC) and Scala Business Solutions (formerly Euronext: A.SCALA, delisted in July 2004), an Amsterdam, the Netherlands-based provider of collaborative enterprise software for mid-size enterprises and subsidiaries of global corporations have completed a merger that began in late 2003. The merger creates the largest independent global mid-market provider of collaborative ERP, customer relationship management (CRM), and supply chain management (SCM) applications based on Microsoft's .NET platform and Web services, with approximately $250 million (USD) annual revenues, nearly 1,500 employees and with over 20,000 customers. The combined company has an expanded global presence with operations and customers in 143 countries, including worldwide coverage of sales, consulting and support for mid-market and large multinationals as well as local enterprises, offering a broad suite of integrated solutions.

Given Epicor's ordeal of the past and the fact that divesting two lateral products in 2001 greatly helped it achieve some much needed stability nowadays (see Latest Development on Epicor's Trying The Divestiture Tack), one could wonder about the wisdom of the renewed Epicor's appetite for acquisitions. After all, the acquisition of former Dataworks had left Platinum (subsequently Epicor) with multiple unrelated ERP products and the inherited daunting task of rationalizing its product development strategy, and, who on earth with a sound mind would like to revisit that experience? Well, concurrently with achieving a turnaround both in terms of its financial performance and of its strategy clarity, Epicor has also for over two years reverted to its, this time possibly more selective, and thus successful acquisition streak starting with the Clarus e-procurement acquisition at the end of 2002, and former ROI Systems and TDC Solutions acquisitions mid-2003 (for more information, see Epicor Picks Clarus' Bargain At The Software Flea Market and Epicor Conducts Its Own ROI Acquisition Rationale).

Moreover, one should note that Epicor has since its progenitor's inception twenty years ago been competing primarily in the true mid-market, which it defines as enterprises with revenues between $50 million and up to $1 billion (USD), and to that end, the vendor has competed mainly with the Vantage (for new business opportunities), Manage 2000, and Avant� products in the manufacturing arena, and with the Epicor Enterprise suite (formerly e by Epicor) and the Clientele standalone CRM product for certain service industries. Increasingly, since customers in this mid-market segment are looking for Microsoft SQL Server-based solutions, the Vantage manufacturing product (and its "smaller sibling" Vista, as an introductory-level product) have turned out as better positioned to address this requirement, although both major manufacturing product lines include the broad range of modules for the upper echelon of midsize manufacturing enterprises.
Therefore, Scala should complement and further bolster Epicor's offering in many regards, but possibly the royal one would be its ability to firmly position Epicor as a standardized tier 2 or divisional solution for Global 1000 companies. This is owing to Scala's unrivaled global product capabilities amongst peer vendors, which will be explained in more detail later in the text. Otherwise, at first glance the merger looks like a positive move for both companies and their customers, since Epicor obtains a foothold in some complementary geographic regions, and in certain discrete manufacturing and service industries where it has not really penetrated in the past (e.g., industrial machining, pharmaceuticals, light engineering, hospitality, retail, not-for-profit [NFP] organizations, etc.) by acquiring a reasonably run vendor without much excessive baggage.

It is interesting to note that during Epicor's trying years at the turn of the century Scala had performed much better. For example, although the market turbulence during these few years had also taken its toll in Scala's restructuring and cost-containment exercise, still, with revenue of approximately EUR 74 million in 2002, which was a slight 4 percent growth over 2001, Scala then remained a prominent mid-market enterprise applications provider. Although its license revenue declined by 7 percent in 2002, the maintenance revenue increased by 23 percent, given that more than 90 percent of existing customers continued to pay for maintenance. This was, in part, due to an aggressive development program, which saw the release of iScala 2.1 in mid-2002 (see Scala Shows Far More Than a Bit of a Backbone) and a newer version iScala 2.2 in 2003. From 2001 to the end of 2002, the company also doubled its research and development (R&D) headcount to over 200 (out of a 700 total employee headcount at the time), plus 50 development contractors, and geared up its in-house training center, the Scala University in Budapest, Hungary to train and certify its growing ranks of 140 resellers that accounted for 23 percent of its business in 2002.

But, despite impressive growth and cash flow during these years, Scala unfortunately posted a quite disappointing performance in early 2003, possibly at an unwanted time, resulting with a restructuring program that included rationalization of the company's bloated R&D base with the closure of some satellite R&D facilities and the transfer of expertise to the company's cost-effective center of technical R&D excellence in Moscow, Russia, and headcount reduction of approximately 30 percent from the previous employee level, including consolidation of a number of senior management positions.

Possibly more disconcerting was the fact that long-standing customer interest in the new functionality of Web services-enabled iScala 2.2 release then resulted in overcommitment to customer-related developments (whereas the iScala 2.1 release was mainly focused on improvements in the underlying technology platform). As a result, the commercial release had to be delayed to September 2003 instead of previously indicated mid-2003. This delay created a vicious circle-like adverse impact on new license sales, as customers had to wait for new functionality. Even as all these events took place at possibly the worst time for Scala,,Epicor, who struggled at the turn of the century, had ironically meanwhile quite straightened its ship to even appear attractive as a savior to former Scala board in 2003.

Also, these rationalization measures and the eventual release of the product have reverted to increased revenues and a positive operating income afterwards. Namely, by the end of 2003, Scala's results were again exceeding expectations owing to a new product released in September, iScala 2.2 Collaborative ERP, which was hailed as the biggest release of new functionality in more than 10 years, and which has several modular or individual enhancements of interest to manufacturers, including service management, CRM, SCM, asset management, contract management, resource management, business intelligence (BI), workflow management, user interface (UI) customization, and connectivity.

The company has since reportedly seen strong customer demand for the new iScala version, reflected in its healthy sales pipeline, especially in markets where Scala traditionally performs well, including Scandinavia, Eastern Europe, Russia, and China. Nearly 60 percent of Scala's top customers, including both global and local enterprises, have supposedly been actively involved as early adopters since 2002, with many of them already running the new version live. As an example, Tetra Pak is one of Scala's longest-standing customers, with Scala solutions implemented in nearly fifty countries, against SAP at the corporate level.