Inc., a privately-held provider of e-sourcing solutions that support
the strategic sourcing needs of global 5000 companies, early in 2003 announced
the completion of financing from new and existing investors totaling $20.5 million.
Menlo Ventures led the third funding round, with participation
from new investor HarbourVest Partners and all existing investors,
including NETinvest, from the previous two funding rounds.
Emptoris then pledged to use the funds to finance further expansion of the company
in a number of areas, including sales, marketing, product development, and penetration
into new global markets.
in September, Emptoris announced the acquisition of Zeborg,
one of the world's leading spend analytics firms. As a result of the acquisition,
Emptoris, with more than 50 global 5000 customers and notable sourcing applications
and services, believes it is now positioned as the leading strategic sourcing
software provider in the procurement and sourcing applications market. In addition
to acquiring Zeborg's software and services offerings, Emptoris will inherit
the company's sales team as well as global 1000 clients from a wide range of
industries, including 7 of the world's largest banking and financial services
companies. Zeborg's customers include American Express, Cigna,
Fleet Boston Financial Corporation, KeySpan,
and Owens Corning. Zeborg has reportedly processed over $480
billion in corporate spend data and over 350 million transactions from over
100 data systems. On the other hand, Emptoris customers include Boeing,
GlaxoSmithKline, Motorola, and Samsung
It would not be a colossal discovery to realize that difficult economic times with flat and often crippling revenues have particularly forced enterprises to reduce costs in ways other than the "tried-and-true" massive layoffs. Purchasing departments, which have long been regarded as "necessary-evil pen-pushers," have recently come as possibly the first to mind as the bottom line improvement opportunity makers through ensuring sourcing and procurement of all materials (indirect and direct) and services for the organization in a more strategic, streamlined, efficient, and cost-effective way.
Owing to ever increasing deployment of outsourcing, virtual manufacturing, contract manufacturing, vendor managed inventory (VMI) and many other modern manufacturing concepts due to increased global competition and the need for enterprises to focus on their core competencies, enterprises are often spending even over 50 percent of their revenue on procured goods and services. Thus, suppliers' bases have been an ever-increasing factor to every organization's performance. Moreover, suppliers being manufacturers themselves, should be leveraged as a valuable source of expertise instead of being treated as a mere external cost center (if the user companies could even glean that knowledge at all), capable of helping their customers deliver more innovative products faster and at better quality levels, and not necessarily only at lower prices. In other words, the competition has shifted from being between individual companies to being between companies and their value chains.
However, so far the communication between manufacturers and their suppliers has been mainly transactional and at arm's length in nature. As a result, few companies can openly claim to manage their suppliers closely and efficiently, and hence deliberately or not, many continue to put up with being inexplicably overcharged for orders or with accepting late shipments. The situation gets even worse when the enterprises have to discern how much they spend, with whom, on what items, and when.
describes an emerging category of software to manage these evolving relationships
between manufacturers and suppliers. Given the relative nascence of the SRM
movement, it often means different things to different people. For a detailed
discussion of SRM see "The
Hidden Gems of the Enterprise Application Space."
The processes that make up SRM depend on a hybrid of technologies and require a significant implementation, data cleansing and migration, and integration effort at most organizations. Still, two underlying results that an effective SRM project should achieve would be 1) the automation of the processes by which a company buys supplies, which can range in sophistication from automated generation of requests for proposals (RFPs) to more holistic order management systems, and 2) to provide the analysis that enables buyers to assess historical supplier data and base subsequent purchasing decisions on the results.
As recap, SRM allows companies to integrate with their most important suppliers to streamline order management, replenishment, and fulfillment, inventory management, and engineering change management (ECM). The key words pervading so far have been sourcing, spend management and contract management. Namely, the core procurement process has become fairly mature and most enterprise application packages provide solid support for the purchasing process.
is Part Two of a three-part note.
One detailed the event.
Three will present challenges and make user recommendations.
To provide a more distinct value proposition, vendors are providing value-added functionality that helps with tasks outside the procurement cycle. The most significant one is strategic sourcing, which, through rating and ranking criteria, a purchasing officer chooses the optimal set of suppliers, with which to negotiate a contract. It enables enterprises to evaluate potential mixes of materials and services and determine appropriate suppliers and terms and conditions to balance cost, quality and risk. The applications can capture supplier information and serve as a medium for collaboration between buyer and supplier on the requirements of the purchasing organization. Generally, the term strategic sourcing denotes many steps that precede the signing of a contract, including spend analysis, identifying potential suppliers, RFQ and contract negotiation, and monitoring and improving suppliers (which logically may happen both before and after the contract signing).
As companies continue to strive to reduce the internal costs of their products and services, more pressure is on the procurement group to source from the right supplier that can deliver as needed, at the right price, but also subject to many other measures some of which can be of a non-quantitative nature, such as product availability, specifications, freight expenses, warranty, terms of contract, distribution partners, and what not. The sourcing equation can become even more complex when federal and state government regulations and corporate mandates such as sourcing from minority-owned businesses are brought into play as thresholds that cannot be circumvented.
Spend management comes in the form of software and services. It allows organizations to gain control of the entire purchasing cycle, since the organizations deploying spend management across their e-purchasing operations should have a much better idea of how their money is being spent. Moreover, they must ascertain how much money is spent and where, before they can identify opportunities to improve sourcing via, e.g., negotiations with the supplier to produce a mutually beneficial contract. Spend management also requires rigid principles and governance to enforce compliance, which means establishing methods of monitoring spending against the budget and providing appropriate alerting and escalation processes for dealing with spending that exceeds budget levels.
Contract management is another key component of enterprise spend management, since contracts are the point around which much of a company's dealings with its suppliers' pivots. Buyers and suppliers can spend an inordinate amount of time figuring out details about obligations and remuneration, incentives, and contingencies. However, for companies handling several dozens of contracts, ensuring that suppliers adhere to contract details is often too cumbersome to be executed. Most enterprises do not have formal systems in place to manage contracts, and thus financial or purchasing executives often do not have visibility into contracts because they are kept in multiple different storage systems or even, as hardly accessible hard copies.
Companies need contract management solutions that can reach across those repositories to help managers gain a comprehensive understanding of the trade agreements under which the enterprise operates. The lack of visibility and control will often cause an enterprise to fail to extract full value from the contract and the relationship with the supplier.
that end Emptoris's acquisition of Zeborg is both a wise offensive and defensive
move, since it combines the resources of two companies that should focus on
arguably growing e-sourcing/spend management opportunities. The companies have
quite complementary product offerings, industries of focus, and excellent customer
references. The merger has some merits similar to the also recent merger of
indirect e-procurement counterparts Perfect Commerce and eScout.
As mentioned earlier, Emptoris's legacy and core competence lies within the manufacturing organizations and complex decision support for sourcing large numbers of complex direct line items, and in subsequent deriving of awards and allocation strategies. The Emptoris Sourcing Portfolio is a suite of eleven Web-based modules that support the broad sourcing process, from identifying demand to creating contracts, thereby enabling enterprises to identify and prioritize sourcing savings opportunities, negotiate significant cost savings, and track contract compliance and supplier performance. It is a modular solution, enabling users to select the modules they need, and start where it makes the most sense for them, whether it is to address more spend categories on-line, identify greater savings in each spend category, automate more of the sourcing process, incorporate suppliers into the extended enterprise, or leverage best practice processes and content. The modules and some description of how they work follows:
The Item Master module is self-explanatory and it serves
the purpose of defining categories and organizing them into an n-tier hierarchy
to mirror the taxonomy of goods and services sourced.
The Supplier Qualification module is where sourcing typically
starts, with assessing suppliers' capabilities. To that end, users can create
questionnaires and scorecards within this module to assess and document a
supplier's quality rating, financial stability, and domain-specific certifications.
The Demand Aggregation module, once users have determined
which suppliers they are interested in dealing with, helps them gather and
summarize their requirements across departments and divisions. This exercise
can be challenging, considering the fact that these groups may source requirements
independently because they are on different enterprise systems or located
in different geographic regions. The module tackles it by aggregating all
the requirements while maintaining links back to the specifics provided by
each original requestor. For example, a corporation can source centrally but
ask its suppliers to drop ship their products to its various plants, and even
though it may bid out the requirements based on aggregated demand, it should
know and can communicate to the suppliers how the demand is divided up among
The Request for Quote (RFQ) module allows users to expose
their requirements to the suppliers and solicit bids, by supporting a number
of different types of negotiation processes, including sealed bids, reverse
auctions, and supplier qualification. The module also provides the capability
to create RFP templates, so that users can address certain industry-specific
requirements through structured data elements, which can be reused in any
other template within the suite through the above-mentioned Smart Data feature.
For example, if one wants to create an RFP template for the mining business,
he/she can structure it so that suppliers must submit information on shipping
costs, tariffs, and lot quality. Once those data elements are in the RFP template,
that information will be available as structured data for leverage later in
negotiations and analyses.
Emptoris's differentiators would be enabling a TCO-based multi-attribute approach,
as suppliers are not just bidding on the price, but on many more pertinent
criteria. The module also includes a workflow engine to support the organizational
hierarchy present in most large companies, as it can specify who is responsible
for each category and sub-category, as well as to document who has the right
to create, open, close, and approve a negotiation. Once the RFP is populated
and it has been decided how to run the event, and all the required sign-offs
are obtained, the solution allows suppliers to respond to this information
in a possibly unique way, leveraging what Emptoris calls an extended enterprise
philosophy, which aims at identifying suppliers' strengths and figuring out
how to leverage them. Namely, instead of treating the requirements as fixed,
suppliers are encouraged to recommend changes that might result in lower prices.
They might suggest that, for example, the customer moves the due dates, allows
multiple shipments (back orders), or buys an additional item from them to
get a lower price (volume-based or bundled discounts). Many buyers would like
to know about these opportunities, given that suppliers can often lower their
costs when they are given some flexibility and wiggle space.
- The Decision
Support module, which leverages scenarios to help users determine
the lowest cost of ownership alternative that accomplishes the specified goals.
For example, users should hedge their risks by giving one supplier a certain
percentage or dollar amount of the business to meet a contractual obligation,
or they may want to spread out their orders among several suppliers. They
will not consider just price, but will also factor in variables such as quality,
suppliers' viability, customer service, and reliability within the scenario.
The software, through scientific decision-making optimization, will identify,
line-by-line, based on the scenario, the sourcing plan that will result in
the lowest cost of ownership. The "what if" scenario simulations are broad,
and every time the optimization engine runs again. Each time, the module explains
what the contributing factors are for a particular scenario, so that users
know what the critical constraints are (e.g., they may get a better price
if they relax the due date). The software aim is at helping users understand
their trade-offs, which might be a valuable piece of information.
- The Standard
and Advanced Reverse Auction module enables real time online competitive
- The Contract
Management module is a summation of the terms and conditions that
were analyzed in the Decision Support module. The rules engine prompts users
to address important issues in their contract, such as compliancy, and there
is an editing tool so that users can fine-tune the final document. For example,
the contract may call for a quarterly review of the elements it was based
upon (e.g., price, on-time delivery, etc.). If any of these has changed, the
module can be configured to send an e-mail, trigger a penalty or bonus, or
initiate a renegotiation, which can be defined upfront, in the business rules
- The Supplier
Assessment module is a tool to periodically evaluate existing suppliers.
It supports lean manufacturing, ISO 9000, and Malcom-Baldridge specifications.
- The Executive
Dashboard module provides information on how much users spend where,
by category, user, or by department. It pulls data from the sourcing events
that users run, and it contains an on-line analytical processing (OLAP) tool
that can report on data from the spend analysis database. While the users
can use spend analysis as the first step to identify which categories to tackle,
the module is more aiming at measuring contract compliancy.
- The Project
Management module sits on top of all the other modules. It provides
the capability to manage categories by project, and a resource for best practices,
by category. The module may tell users what they need to do and how to do
it for peculiar materials. For example, it might advise users what suppliers
they may want to consider and what the nuances of the category are, which
creates significant efficiencies within the sourcing organization because
it can tell a buyer who has never managed certain categories what to do and
what to expect.
- The Software
Development Kit (SDK) module enables organizations to set up data
imports and exports to an ERP or other operational system. It provides significant
access to all data elements in and out of Emptoris's system through high-level,
UDDI and XML-based API calls. The solution does not provide nor does it require
real time integration by the nature of transactions.
the other hand, Zeborg offers the combination of software and consulting expertise
in tracking indirect materials spending primarily in the financial sector, and
especially for complex indirect goods and services, including temporary labor,
advertising, and print. It has been providing sourcing consulting engagements
for particular spending categories by using its specialized RFX Sourcing
Suite to help its clients negotiate a better deal with their suppliers.
It has a few dozen pre-built RFX templates, and its real skill lies in helping
companies sift out their above-mentioned indirect procurement spending, and
then attain savings in those specific categories. Filling Emptoris' spend management
capability gap, Zeborg focuses on the front of the sourcing process by providing
turnkey data cleansing, cross-referencing and category classification services,
and an advanced analytics engine for detailed spend data management and analysis.
Its premier module, ExpenseMap, aims at giving a granular view
of spending as a means to uncover better supply opportunities, and the solution
has also been used to drive compliance efforts.
to being acquired, Zeborg attempted a foray into sourcing execution to help
companies reap the savings that they have identified during spending analysis.
To that end, the RFX Sourcing suite also provides certain capabilities for discovering
the best prices through an automated bid and analysis process, which leads to
long-term contracts. However, given it's a matter for an expert's prowess rather
than an enterprise application developer, Zeborg's future in developing a single-trick
software was dubious, and it was expected the vendor would seek to embed its
expertise (captured into a stack of "Excel spreadsheets on
Microsoft Visual Basic steroids"), into an enterprise-level
sourcing suite that would appeal to the top executives. This is where Emptoris
comes into picture, and Emptoris's expert knowledge will likely be further productized
into the ExpenseMap templates, process flows, and pre-configured analysis and
award scenarios to expand within the Emptoris sourcing portfolio.
Despite the apparent disconnect between two vendors' expertise (i.e., direct materials and manufacturing customers of Emptoris versus indirect materials and service industries of Zeborg), the fact is that manufacturers too have a need for indirect materials procurement, as shown with a couple of Zeborg manufacturing customers like Owens Corning. Thus, Emptoris customers should leverage Zeborg's strong spending analysis technology platform and services capability, and the potential for closed-loop performance analysis that is critical to any supply chain management initiative, whether it is predictive spending in the supply chain or pre-spending analysis to guide all types of requisitions to the right contracts or commodity managers.
concludes Part Two of a three-part note.
One detailed the event.
Part Three will present challenges and make user recommendations.