I recently had the chance to catch up with an old FreeMarkets colleague, Alpar Kamber, who is leading the charge for Denali with a new Sourcing Services offering that looks like virtually nothing in the market I've seen. Denali has other offerings, including consulting, market intelligence and recruiting and staffing, but these capabilities look very similar to other things I've seen in the market, regardless of how differentiated they may be in execution. However, Denali Sourcing Services stands out as a new type of service offering that is at once low-cost -- the economics can work out to be less expensive than hiring sourcing resources internally -- and expert. I'd best describe it as a hybrid mix of staff augmentation, sourcing consulting and BPO (but with the ultimate ownership of decisions resting with the buying organization rather than an outsourced partner).
Denali Sourcing Services' model is not focused on replacing what they describe as dedicated support areas for category management, where expertise and spend ownership is required. Rather, it's meant to serve as a shared service for transaction-oriented sourcing models (sourcing, not P2P, mind you) where an automation possibility exists. Under this model, client organizations retain ownership of setting strategic direction, internal stakeholder management, market analysis and overall decision making. Where Denali Sourcing Services comes into the equation begins with the tactical execution of spend analysis, sourcing execution (e.g., RFX management, auctions, etc.) requisition management, contracting and overall vendor management (e.g., collecting information that feeds into scorecards).
The delivery model depends on a shared services team environment where dedicated client resources sometimes factor into the equation. Today, Denali has 60 full-time employees in this group with a roughly 5 to 1 ratio of program/project/team managers to full-time sourcing-focused resources. Nearly all of these resources have previous sourcing experience and process knowledge, but they are typically not category experts (however they can tap the rest of Denali member companies to gain access to specific category insights as required). Among these 60 or so resources, just over half are in North America with the remainder spread between Europe and Asia (including 11 in India and 6 in China). Even though there are a number of offshore shared resources/assets between Denali Sourcing Services customers, Alpar was quick to point out that this is not a BPO model in any way, because clients retain full decision making authority -- Denali is merely serving as sourcing arms and legs to get projects completed, programs managed and additional spend under control.
The primary "doers" in Denali Sourcing Services engagements fall into the Sourcing Analyst/Associate level. These team members are dedicated to delivering specific sourcing services and projects either on a shared-services or dedicated client basis. They are managed by Sourcing Team Leads who provide oversight and supervision and also bring additional experience to work on more complex and strategic projects (e.g., MRO, transportation, etc.) Last, program managers deliver overall PMO oversight to the client, leveraging Denali's own resource and project management tracking technology (Denali leverages third party e-sourcing and other technology based on client requirements).
In Part 2 of this series looking at Denali Sourcing Services, I'll talk about how the economics of typical engagements look (they're very different from traditional sourcing consulting and BPO models) and how the model is potentially a replacement for procurement staff augmentation approaches that I know many companies have explored in recent years. On many levels, it's clear that Denali has learned quite a bit from the shared services organization that FreeMarkets was able to build to more efficiently deliver sourcing programs, driving up their margins in the process. However, unlike Ariba and others in the market, it appears Denali is taking a more aggressive line on pricing these services at points that could potentially be disruptive in the market. They're also growing at a very healthy double-digit CAGR, which is something that can't be said for the legacy FreeMarkets organization that remains somewhat of an awkward stepchild within the broader Ariba portfolio.