Catching Up with Elemica, Starting with Sourcing (Part 1)

In the coming months on Spend Matters, we'll feature a series of multi-part posts on Elemica, one of the last remaining B2B marketplaces that got its start in the dot com era. Given the attention that Quadrem has received in the past week owing to its announced sale to Ariba -- not to mention BPO interest in acquiring shared services-type organizations and captives -- I suspect we'll see greater attention paid to other remaining exchanges as M&A talk heats up. As background, Elemica, like Quadrem, Exostar, Agentrics, E2Open and other business-to-business / shared-services marketplaces that survive today was founded by a number of market leaders in their respective industries.

In 2000, 22 chemical/process companies invested $140 million -- yes, you read that correctly -- to get Elemica off the ground. I was once visiting one of the above aforementioned marketplaces and they not-so-proudly showed off what they described as the $35 million Foosball table, a gift from Accenture. And you wonder where all that money went ...

But I digress. Back to the subject at hand: Elemica. Later in 2009, Elemica merged with RubberNetwork. Today, they focus on two areas: strategic sourcing and technology enablement across both procurement and supply chain processes and connectivity between partners. While some of Elemica's technology offerings are quite differentiated and much deeper in the supply chain than other procurement-focused companies (with the exception of E2Open, which is also very deep in supply chain), the size and depth of the sourcing services practice is nothing to shake a spend stick at. Today, the company has around 150 employees overall, with over 33% coming from the sourcing team. In this first series of posts looking at Elemica, we'll focus our attention in this area.

Elemica is quite clear on why customers engage them in the strategic sourcing area, in what FreeMarkets used to describe as a "FullSource," full-service manner, focusing on what it describes as the "three C's" as rationale for working with them. These are cost reduction (especially in the area of indirect materials), capacity (i.e., the ability to provide arms and legs) and capability improvement (focused on knowledge transfer and sharing). Elemica has approximately 60 resources in its sourcing services group, some working onsite with customers and others working in shared services centers.

Like other firms that provide a breadth of sourcing services capabilities, Elemica can handle both basic sourcing engagements -- what they describe as simple, discreet "tactical purchases" -- and more advanced sourcing engagements, including data collection and analysis/optimization in the logistics area. Elemica's domain experience has helped them penetrate a process manufacturing world where centralized purchasing authority and capability is the rare exception rather than the norm.

Because of the frequency with which plants/facilities are bought and sold, many companies have intentionally kept sourcing efforts (e.g., plant MRO) as decentralized as possible. This makes the coupling and uncoupling of facilities that much easier. And it also makes for an environment ripe for a relatively common AT Kearney-type sourcing model to deliver significant savings. For this reason, it's no surprise that Elemica is delivering an identified savings ROI of approximately 7X (which, even if we knock down to 4-5X to account for savings implementation challenges, is still a solid number).

Stay tuned for further coverage of Elemica's sourcing practice, including its capabilities in the logistics area.

Jason Busch

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