Last week, I had the chance to speak to the Midwest user-group of a GPO (group purchasing organization). As background, this was not a healthcare GPO, but rather one that serves a range of manufacturing and services companies with pre-set contracts in over a dozen categories. The topic of my talk was the Spend Management technology landscape, a subject near to my current research and passion. I would classify the majority of companies as at the larger end of the middle market ($1-$3 billion in revenue), though certainly there were a handful of even larger companies who joined us for the day. There was a good mix of manufacturers and service companies.
I began my talk by surveying the crowd of 35 or so attendees about their current procurement and sourcing technology investments. What I found -- especially given the backdrop I'm about to set -- might surprise you. But first, a bit of context -- in our market segmentation work for clients , we've found that typically more advanced organizations (innovators / early adopters / early majority) tend to look to shared service and outsourcing solutions earlier than more conservative organizations. So given that this provider's user group was composed of companies who fall into this category, you'd think that they had significant Spend Management technology adoption. Guess again.
In reality, only a minority of companies in attendance had adopted any sourcing or procurement technology out of what was already provided in core ERP / MRP functionality (e.g., site / plant level PO cutting and transactional buying). But as I expected, more companies had used a sourcing and decision support tool (about 20-25%) than other technology areas. In the procure-to-pay, spend visibility, and contract management solution areas, technology adoption fell between 5-15%. Risk and supplier performance management technology adoption was also very low. In general, the audience had used a number of best of breed vendors (Ariba, Emptoris, Open Ratings, Ketera, Iasta, and others all came up as vendors which they had used). A number of users heavily discounted the cost and hassle of working with their ERP provider over best of breed solutions.
I will point out that there was one Open Ratings enthusiast in the audience who patiently explained the value of risk management to the group and how the tool could be used for managing supply risk for both indirect and direct materials categories. It's funny when you see Open Ratings converts volunteer themselves in a crowd -- even though they're a small group, they're fanatical about how the solution is critical to helping them more effectively do their jobs.
Let's get back to the main focus of this entry. So what do my findings prove out for Spend Matters reader? I'd say three key things. First, Spend Management technology adoption even in larger middle market companies remains low (even with those organizations who have a propensity to invest earlier in solution areas than the rest of the market). Second, many are embracing a category partnering / sourcing approach to working with at least this one GPO before they invest in broader technology roll-outs across their spend categories. And third, there's a great degree of skepticism towards ERP capability and direction, at least within this group of larger middle market users. Without question, SAP, Oracle, and Infor have a long way to go to convincing practitioners in this market segment that they're a viable alternative to best of breed providers.