In March 2004, Zycus released a vision document titled 'Spend Analysis 2.0'. The paper presented a succinct history and future outlook of the spend analysis market. Spend Data Management was identified as a key driver for the adoption and success of broader SRM initiatives. We also predicted that the flurry of M&As witnessed in FY 03-04 between niche Spend Data Management (SDM) service providers and Strategic Sourcing Vendors were going to face humungous challenges in delivery.
A year later Spend Analysis 3.0 examines how those M&As fared in the real world, highlights emerging best practices in SDM, and makes a definitive assessment of the future roadmap.
The much hyped M&A's (Ariba-Softface, Emptoris-Zeborg, Verticalnet-Tigris) possibly delivered less than anticipated value. ARIBA acquired Softface a spend data management ‘software’ company, but migrated to a hosted option for data management, driven primarily by services. Emptoris acquired Zeborg (who offered Expensemap software), but they too adopted the hosted services model as well. They recently announced acquisition of Intigma possibly to bolster their off-shore data management capabilities. Verticalnet which had acquired Tigris, continues to offer spend analysis as a hosted service.
Software solutions in data management are usually less expensive than services over a 2-3 year time horizon. It is not clear why the vendors who acquired software companies moved into a managed services model. Anytime a service option is brought to the market, there are price pressures and delivery challenges. In our opinion these vendors reinforced their off-shore strategies recently, in an attempt to offset rising costs of spend data management services.
Pure-play Spend Data Management software vendors such as Zycus, are recognized as category leaders, and ideally positioned to partner with the leading SRM vendors (such as SAP and Oracle) and stack players in DW and Analytics space to enable creation of the next generation Spend Data Warehouse. Several customer wins and proven deployments at customer sites such as GE, Dupont, 3M, Federal Govt. of USA, ADP etc. are testimony to the fact that software products for spend data management (such as Zycus AUTOCLASS) are a reality and now ready to replace service offerings at most F-500 organizations. Recently Zycus AutoClass software got the "Powered by SAP NetWeaver" certification, and has the unique distinction of being the only product in its class to have such credentials.
Spend Analysis has moved beyond a one-off strategic sourcing kick-off activity and matured into a best practice for large organizations who need to track their spend management KPIs. To do this they need powerful analytics and a robust spend data store, that can be continually enriched with clean and classified spend data. This need has fuelled the demand in large enterprises to build an infrastructure or leverage existing IT systems, to allow for repeatable and automated spend analysis. Automated data classification software has emerged as key to enabling automated spend analysis.
Customers are realizing the value of owning a software tool for spend data classification. Once purchasing and IT align with common priorities, they are quickly able to draw a parallel to the best practices adopted in the customer data space, where a customer data management software (such as Trillium) is considered a de-facto standard fitting in the stack of ETL, Data Warehouse and Analytics. Many customers, who have leveraged Verticalnet, Emptoris and D&B solution for years, are exploring the usage of software tools.
The key issues in the customer's mind are: Lower total cost of ownership (TCO), repeatable and automated spend-analysis, and data security.
For large enterprises that have struggled to meet the challenge of aggregating spend data dispersed across multiple legacy and ERP systems, the answer was a no-brainer. No one really wanted to part with their 'spending analysis' data, and send it outside the enterprise to get it cleansed, classified and enriched. This was sensitive information for competition (similar to customer lists and sales contracts) and no-one was comfortable exposing it to a third party.
Supplier data enrichment was a non-critical function that could be farmed out to specialty supplier content providers such as D&B, but item-data essentially remained locked inside the enterprise. This data, representing things that you actually buy from a supplier (quantities and unit price) remained buried within data repositories such as SAP Business Information Warehouse, Teradata etc., while enterprises continued with their hunt for automated software tools that could help unlock the savings insight buried within.
Procurement chiefs realized the value of category management as core to their spend management strategy, as soon as they were done with the cleansing of their supplier base. Now they wanted ‘super-charged spend analytics’ to provide them with details of what commodities they were buying in each category, from whom, in what quantities and what price. They wanted contracts identified in each category, wanted to set targets and more importantly measure KPIs on a continual basis. Without category management, huge savings would remain unidentified and even projected savings (through fresh contracts) would continue to leak because of maverick purchases. To deliver category management, the prime requisite was to have a sound Spend Data Management strategy in place first. This called for setting up of a Spend Data Warehouse infrastructure that would deliver item-level visibility and would resultantly facilitate better category management.
Unfortunately this was not on many CIO's blueprint, and the ensuing tussle for budget prioritization, created a market opportunity for ad-hoc solutions from the pure-play strategic sourcing vendors. Many customer were trapped waiting for IT to reprioritize their budgets and resources to build a spend analysis infrastructure, and purchasing teams got a go-ahead to move independently and consciously to an interim hosted solution, so they could kick-start their spend management initiatives.
The road ahead
Many customers who opted for the hosted 'spend data management' model are now learning from the industry leaders that it pays to think long term. They realize they could have saved millions in service costs incurred over the years, or garner far greater insight from their purchasing data by diving deep within a category (a fact often overlooked because of high costs associated with item-level visibility).
Most customers who have now exhausted their hosted contracts for spend analysis, are not looking back at renewal. Many are migrating mid-way, through attractive upgrade option available from SDM software vendors such as Zycus.
Almost ALL of them are architecting the next generation spend data management infrastructure so they can make spend analysis a part of the corporate purchasing DNA. For some, the right timing is now, for others it is somewhere in the near future – but the choice of solution and road ahead is clear. |
