Jul 07 Are Spend Management (or SRM) Apps Suited for the Mid-market? – Part 1

I could think of at least the following five key issues and challenges that in turn lead to tremendous opportunities to save money, time, and bolster the bottom line of companies of all size.

Issue #1 is excessive spending for direct and indirect goods and service
—i.e., more than a company should for it needs. The opportunity here is to reduce the company’s spending by minimizing maverick purchasing practices, reducing transaction costs, and leveraging the aggregated (collective) purchasing power of the enterprise to negotiate more favorable pricing, service, and contractual terms and conditions.

Issue #2 is a lack of visibility and accountability. Many companies are not exactly sure what they are currently spending their money on. The pertinent historical and snapshot data is lacking and is likely inaccessible. Questions like, “How much are we spending? With what suppliers? On what categories? Who is spending it? How long does the approval take? Are we within the budget? What suppliers are (or are not) fulfilling orders on time? Should we rationalize our supplier base? Are there spikes or trends in our spending patterns that require action?” and so on require constantly changing answers.

The opportunity here is for all managers and executives to monitor spending (via personalized interactive analytics and alert messages) by category, location, cost center, department, project, you name it. These metrics should be known/viewed as transactions are happening, instead of only after they are booked to the general ledger (GL).

One way to solve this conundrum could be via procurement data marts that provide prepackaged spend analysis over a few dozens metrics and dimensions for fast answers to the above questions. These answers should be based on fresh (real-time, or close to real-time) data rather than on “rearview mirror.” This hindsight speed-of-thought spend analysis should measure and optimize savings via packaged buyer analytics, key performance indicators (KPIs), and proactive control and supplier collaboration.

Issue #3 is that most companies have a legacy of too many vendors that supply disparate operations and manual approval processes that make it impossible to exercise reasonable control. The opportunity here is to have an overarching system that enforces controls, drives requisitioning and purchasing clerks to preferred suppliers and items, and makes an approval workflow a snap. Essentially, the idea is to make it patently easy for everyone to do the right thing consistently time and again.

Issue #4 is that many existing procurement and payment processes are labor-intensive and fraught with errors and rework. As a result, too many people are spending too much time on clerical tasks. The opportunity here is to lift that burden and focus the company’s human resources (i.e., requisitioners, managers, and purchasing professionals) on more strategic activities.

Finally, Issue #5 is fragmented enterprise systems (and islands of information), which are difficult to navigate and almost always require duplicate data entry. Astute integration technologies should solve this problem without costly IT input, even if the enterprise is integrating diverse solutions (i.e., procurement and sourcing with different front-office and back-office solutions). There is often a need to integrate procurement to accounts payable (A/P), GL, and inventory management systems, whereas both procurement and sourcing systems often have to be linked to supplier catalogs, Web sites, and sales order management systems.

Are Spend Management (or SRM) Apps Suited for the Mid-market? – Part 2

Generally speaking, sourcing is the process of identifying a company that provides needed goods or services. APICS Dictionary further defines strategic sourcing as “The development and management of supplier relationships to acquire goods and services in a way that aids in achieving the immediate needs of a business. It is entirely aligned with the sourcing portion of managing the procurement process.”

In other words, strategic sourcing is the continuous evaluation of preferred suppliers, goods, services, price, and non-price attributes to achieve the optimal mix of all parameters. The group of (preferably electronic) “request for” documents collectively called “RFx,” which entails requests for quotation (RFQs), requests for proposal (RFPs), and requests for information (RFIs), facilitates the supplier evaluation efforts.

Actual buying or selling (sourcing) takes place via a number of auction events that will be described shortly. Purchases can be direct or indirect, depending on whether they entail direct or indirect materials.

Direct materials are materials that become part of the final product in measurable quantities. These are raw materials for manufacturers, and finished goods and components for distributors. Conversely, indirect materials are materials used in manufacturing that are not normally charged to finished production, such as cutting and lubricating oils, machine repair parts, glue, or tape.

Indirect materials also include maintenance, repair, and operations (MRO) supplies, or items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations. Office supplies, computer equipment, professional and temporary services, catering services, facilities services, travel, internal suppliers (e.g., computer, telephone), and so on are other examples of indirect purchases.

There is a third kind of sourcing/purchase, spot purchase, which is a purchase made for standard off-the-shelf material or equipment, on a one-time basis (”on the spot”). Spot purchase could apply to non-catalog items requisitioned through the procurement module and also to single sourcing events for large purchases that warrant competitive bidding. In the first case, the sourcing module logically must be integrated with the procurement counterpart.

The sourcing process starts from an actual requisition for a certain material or service that follows the creation and posting of an event, bidding, evaluation of bids, selection, and approval of the winner, and transmitting the actual purchase order (PO) or contract to the winning supplier.

Are Spend Management (or SRM) Apps Suited for the Mid-market? – Part 3

Epicor Software Corporation is a global company dedicated to providing integrated enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM), and professional service automation (PSA) software solutions to midmarket companies and divisions of the Global 1000. Founded in 1984 and headquartered in Irvine, California (US), Epicor serves over 20,000 customers in more than 140 countries, providing solutions in over 30 languages. For more details on the company’s offerings, see my blog series on Epicor in early 2008.

The Epicor SRM suite stems from Epicor’s acquisition of certain assets of formerly Atlanta, Georgia (US)-based Clarus Corporation in October 2002, as part of its strategic initiative to offer a comprehensive and integrated enterprise solution. For more information, see TEC’s 2002 article entitled “Epicor Picks Clarus’ Bargain At The Software Flea Market.”

The acquisition brought an initial set of SRM solutions covering Web-based procurement, sourcing, online invoice presentment and payment (settlement), and the ePortal Supplier Pack for secure supplier access to relevant information. Then there was View BI, a business intelligence (BI) module for spend analysis, and finally eTour, a training and reference application available 24/7 through a Web browser.

eTour has since been retired, since it was underused and too expensive to maintain. For its part, View BI has meanwhile been replaced with Epicor Enterprise DecisionStore for spend analytics. The invoice presentment and payment module was never really completed by Clarus, and Epicor chose not to invest in it because the company felt that procurement, sourcing, and spend analytics were the most important and most value-add midmarket SRM solutions. Indeed, electronic invoice presentment and payment (EIPP) solutions have long been offered by Ariba, Basware, and J.P. Morgan Xign.

Product Development Goes On

Since 2002, Epicor has delivered three major releases and several minor releases, especially of the Procurement module. These enhancements have all required internal development, since there have been no other SRM-related acquisitions. In late 2003, the vendor announced the release of Epicor eProcurement 7.3, a purchasing management solution that provided a connection between buyers and suppliers for the purchase of direct and indirect goods and services within the framework of defined business rules.

New in eProcurement 7.3 was the integration of inventory management and back-office purchasing modules (e.g., with the back-office purchase order approval routing and end-user requisition capabilities). Blanket purchase orders and releases was another major group of capabilities within the 7.3 release.

For example, permissions to create blanket purchase orders are configurable, and blanket orders can be used for either private or public consumption. Blanket orders’ characteristics (or specification of the goods or services that the order covers) can be specific items and quantities, a monetary amount of one or more product categories, or a general monetary amount, regardless of items or categories. Blanket orders also support effective dates and consumption priorities, while order releases can be done individually or on a schedule.