2010 Prediction: Procurement Organizations Budget for Supply, Commodity, and Supplier Risk Content

My first two predictions in the Spend Matters 2010 forecasting series were certainly more controversial than this one. Still, one could argue that my third prediction, that an increasing number of procurement organizations will budget for supply, commodity, and supplier risk content in 2010, is the most important of the three so far. That's because, with increasing frequency, company procurement organizations -- not to mention finance and operations -- are becoming aware of the degree to which they've been flying VFR while up in the clouds in recent years (despite an initial perception that they were piloting their way through a perfectly clear environment). Increasingly, even average-performing procurement organizations are sensing the need to go up and down the ranks -- from the CPO to the category manager -- to invest more in the type of data and insights that can help them make better total-cost decisions and reduce or eliminate business risk.

This information is taking many forms; some of it is even free (for example, it's possible to get domestic and exchange-traded metals information from multiple sources, and global-metals pricing intelligence from our Spend Matters affiliate site, MetalMiner, at no cost). With this data, companies are beginning to talk more openly about the ownership of commodity price risk in contracts, including who should assume it (the buying organization, a supplier, or a third party); how to price it; and how to track, measure, and report on changes. The types of content and pricing intelligence that companies are looking for go beyond just commodity prices, however.

Increasingly, companies are checking the box for additional data-enrichment fields across a range of Spend Management software areas. Whether or not it's part of a spend analysis of a supplier information management initiative, for example, organizations are increasing the frequency with which they pay for additional content (including diversity information, supplier financial-risk indicators, and sustainability/CSR insights). This choice is becoming easier for companies, because the software vendors with which they contract (e.g., Ariba, Aravo, SAP, Emptoris, BravoSolution, and many others) are forming content-reseller partnerships with a range of companies that include D&B and Equifax.

While organizations typically pay by the record for these kinds of information services, more and more companies are considering subscriptions to premium market-intelligence services. These services wrap content and forecasting intelligence inside broader qualitative market insights that include recommendations of sourcing approaches and considerations for companies to take into account as they implement a particular strategy. Denali Intelligence and Procurement Leaders Intelligence Unit (PIU) are two such services, both of which are new but already realizing material traction in the market. In the case of metals, MetalMiner is also getting in on the forecasting and pricing-intelligence market by launching new subscription and research-based intelligence and forecasts for base metals (including suggested sourcing strategies).

With the availability of all these new supply markets and supplier intelligence capabilities, it would seem almost a given that companies would begin to think more about the universe of content options available to help their team members perform better. Without budgets for such initiatives, however, even well-intentioned content services would go nowhere. The good news in this regard is that Spend Matters is seeing more and more companies find and allocate budget line items to supplier, supply markets, and commodity-pricing intelligence. Moreover, this is often a new line item, not one taking away from existing software or professional services budgets.

In some cases, especially in the area of supply risk management, these budget line items come courtesy of finance organizations; in others, they're coming from supply chain and quality teams. More often than not, it's procurement itself that is making room for content and intelligence in its overall budget. For this reason -- not to mention an increasing general concern over volatility and risk throughout the supply chain -- Spend Matters believes that 2010 will most certainly be the year when market content and intelligence services cross the adoption chasm.

Jason Busch

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