Friday Rant: Xcitec/Emptoris and Beyond — Will Supplier Management Absorb Sourcing?

Emptoris' acquisition of Xcitec earlier this week should have very material implications for the broader supplier management and supply risk management market. Up until now, the only vendors with any commercial scale who were pushing supplier management were SAP and Oracle, and both were doing so in a limited fashion at best (SAP has been more aggressive recently, judging from the number of deployments in production we've seen and touched). Yet with Emptoris now incorporating a best-in-class supplier management capability within its own suite, it's likely we'll see an increasing number of companies talking about supplier management on a regular basis from an application perspective. And as we all know, when vendors with such bench strength create a fire, they also create the antidote that can put it out (after all, that's what good sales processes are all about)! In this case, the good news is that the flames were real long before they became a ubiquitous part of any PowerPoint on the subject.

In addition to the hundreds of direct and indirect feet on the street Emptoris has through its own commercial organization and relationships with channel partners, supplier management -- and supply risk in particular -- has become the proverbial talk of the procurement town at many of the events I've attended lately. I was surprised at the recent Procurement Leaders event in Chicago, for example, how many executives in attendance seemed keenly interested in the subject. Topics involving key areas within supplier management (e.g., risk, CSR, supplier development, tapping suppliers for innovation) were present in what felt like at least half of the presentations that I heard. And for at least one, it was the centerpiece.

I believe that Emptoris' purchase of Xcitec combined with executive practitioner interest in the subject is a key indicator of how important supplier management will become in the coming years. From a technology perspective, I suspect we may very well see the basis of the orientation of a sourcing/procurement non-transactional operating system shift from tactical e-sourcing tools to supplier management, where sourcing efforts are actually an outgrowth of a broader lifecycle management initiative (and even for first-time or one-time sourcing engagements, the notion of a more holistic model and information discovery and exchange may take on greater importance in areas such as risk and the defining moments of an initial relationship relative to the importance we place on RFIs, RFPs, auctions and the like).

It's also reasonable to expect that we'll see the type of supplier lifecycle information that companies are beginning to capture using tools and solutions from providers like Xcitic, Achilles, Hiperos, Aravo and others become more firmly integrated into sourcing processes as well. For example, a company like Apple, when it is deciding on a lower-tier supplier split of business for a commodity part or component (e.g., DRAM, plastic injection moldings, metal housings), may opt to include dozens of fields based on past operating performance, adherence to codes of conduct, audit results and the like within the context of a sourcing application itself. In this manner, sourcing becomes the logical outgrowth of supplier management, rather than the other way around.

Moreover, as I recently suggested on an ISM webinar, think about the current environment and how sourcing efforts alone are failing us (that is, if we've been at them for a while). Today, from a savings perspective, sourcing alone can fail to deliver the type of bottom-line improvement our stakeholders expect in climates where suppliers hold the cards. And let's not forget that in many companies, post-sourcing savings loss/leakage is higher than ever. Toss in the ongoing challenge of rising commodity prices/volatility/availability and working collaboratively rather than against your suppliers, and it becomes all the more obvious why supplier management is so essential not only to ensure compliance and reduce risk, but to reduce costs and maintain relationships.

Without question, supplier management's time has come. And the timing of Emptoris' Xcitec acquisition could not be better -- for the market or for the vendor. But my big question in the coming years is whether supplier management goes so far as to absorb sourcing, rather than the other way around. Think about it, and all of the implications it may have for your organization or your clients/customers.

Jason Busch

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