Jaggaer and Pool4Tool to Merge: The Start of a Trend in Direct Materials Solutions

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Jaggaer and Pool4Tool announced Monday the two providers would merge, revealing what was probably one of the better known procurement and supply chain industry secrets in recent memory.

The combination creates the only technology provider in the market with end-to-end indirect and direct materials procurement coverage, the companies said in a press release.

“The merger positions Jaggaer as the only e-procurement company with a global footprint that offers complete, end-to-end indirect and direct spend solutions … greatly expands Jaggaer’s footprint in Europe, Asia and the Middle East and delivers a global presence for its data centers and customer support. It also adds direct material capability in the North American market.”

News and Numbers

Jaggaer and Pool4Tool shared with Spend Matters that:

  • The company will go to market with different product lines for indirect and direct materials, with no immediate plans for full integration of the suites on a single platform/stack (although Pool4Tool will take advantage of Jaggaer capabilities in spend analytics, sourcing optimization and related areas via integration, and there are plans to “coordinate functionality within certain modules”).
  • The combined entity will have 900 clients. (Pool4Tool adds 300 to Jaggaer’s 600.) The goal is to have 1,000 customers by “year end.”
  • The joint organization will have 150 employees in Europe, Asia and the Middle East. (Jaggaer had a limited footprint outside of North America prior to the combination.)
  • The combined entity will have comfortably more than“$100 million” in revenue, providing Pool4Tool additional credibility that will help it sell its solutions, especially to larger manufacturers, in North America (compared with Europe, where it is much better known already).
  • Beyond commercial scale/credibility alone, the combination will also give Pool4Tool “a much larger professional services organization to leverage in deployments in North America, a partnership/business development arm to develop and manage systems integrator relationships and U.S. data center access.”
  • Pool4Tool will keep its name (for now).

The Elephant in the Tool Crib

There are numerous ways to look at this transaction, including Jaggaer buying a launch vehicle from which to expand into Europe. (This point is certainly true, especially from a higher education perspective.) In our view, the critical takeaway for this transaction is that it puts direct materials procurement on the map in North America. This is the “elephant” in the tool crib, so to speak.

Direct materials procurement technologies have struggled to cross the buying and adoption chasm in North America. Granted, parts of this market have been hived off by industry or specialized solution areas (e.g., bill of material support for high tech manufacturing, commodity management for soft and hard commodities, customized manufacturing/procurement/supply chain analytics, etc.). But generally, solutions like Pool4Tool have been hammers in search of nails with North America-based procurement and supply chain organizations. Until recently, Excel, Office and IT science projects — combined with the bastardized use of MRP, source-to-pay and supply chain systems — have been the de facto direct materials procurement technologies used by procurement in manufacturing environments.

The Start of a Trend: Specialized Direct Materials Solutions

So far, 2017 has seen some early momentum for the creation of a specialized market set for direct materials solutions, with Pool4Tool and competitors Ivalua and SAP Ariba both winning deals and further developing specialized manufacturing procurement offerings. Unfortunately, one of the early stalwarts in the sector, Directworks, never seems to come up in our customer discussions and appears to be struggling on a comparative basis to win new business, just as the overall market has struggled until recent quarters. We have not heard from MFG.com, either.

Other European providers with capability in direct materials, however, are ramping up their efforts in North America and globally (e.g., SynerTrade). Regional providers Fullstep (Spain) and Allocation Network (Germany) also continue to thrive in their home markets with at least a partial focus on direct materials procurement enablement.

But what are direct materials procurement solutions? As we noted in a Spend Matters PRO research brief — which is now five years old! — these technologies offer numerous capabilities, including:

  • Bridging design/engineering and procurement activities through enabling components that complement computer-aided design (CAD) and product lifecycle management (PLM) tools while replacing less-specialized e-sourcing tools
  • Enabling full bill of material (BOM) integration, extraction and collaboration
  • Introducing supplier product, component and part attribute information at the core of the sourcing process (rather than simply attaching PDFs or design drawings to a line item or lot)
  • Enabling secure design and related specifications and information sharing between internal parties, potential suppliers and selected suppliers (with the ability to grant and revoke access permissions)
  • Qualifying and documenting suppliers, supply chains and bills of material based on new product introduction (NPI) processes or first article testing requirements
  • Managing total cost elements across a range of variables/factors, including price decomposition (raw materials, energy, wages/financial, profit, packing/delivery), freight costs (ocean freight per metric ton, fuel surcharges, import brokers fee, etc.), finance/inventory carrying charts (letters of credit, settlement, post-settlement, electronic banking, inventory requirements based on lead-time, etc.) and aggregate cost factors (cost per pound, quantity, FOB price, import duties, etc.)
  • Providing basic sourcing and negotiation capability (RFX, RFI, reverse auctions, sealed bidding, etc.) on the item and lot level tied to the above capabilities
  • Offering best practice category templates for sourcing specific categories and information
  • Providing a means of either identifying new suppliers or matching design/engineering requirements to an established set of suppliers based on capability profiles
  • Managing detailed supplier profile and capability information, including certifications, manufacturing processes, equipment, tooling, etc.
  • Specialized analytics and reporting capability spanning spend, suppliers, commodities, supply chain (inbound and outbound), production, quality and other components
  • Enabling direct materials transactional procurement (including tactical buying/ERP integration, EDI, document exchange, support for industry scenarios, etc.)
  • Offering design- and procurement-specific collaboration, ideally in a CAD-neutral format (2-D and 3-D) to enable internal and external constituents to ask questions and iterate on potential design elements of a prototype or production sourcing program (e.g., such collaborations might allow for suppliers to refine their bids based on greater insight into tooling or machining requirements, provide alternative material specifications, etc.)

This list is not complete by 2017 standards (and we’ve even added to the original list above) as available solutions for enabling direct procurement through technology have expanded materially. But out of the manufacturing procurement technology poll position gate together in the second half of 2017, Jaggaer and Pool4Tool touch more of these bases than any other competitor we can think of, at least in part.

And if the market is ready to adopt these capabilities as a separate class of procurement solutions en masse, the merger could prove one of the more prescient M&A moves we’ve seen in the sector in recent years. Just make sure you pull the right “tool” out of the crib before getting started!

Stay tuned for further coverage and analysis on Spend Matters PRO later today and this week.

Disclosure: Pool4Tool and JAGGAER are past or current clients of Spend Matters and Azul Partners Inc.

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