Can Coupa (and its procurement suite peers) manage supply as well as spend?

We are witnessing a pivotal change in the market for some of the big source-to-pay (S2P) suite players (like Coupa, SAP and their peers) as they move toward a broader platform and ecosystem approach. But can they transcend the business spend management sphere and really go beyond indirect spend management support into the realm of supply [chain] management beyond some of the “basics” (e.g., communicating direct POs to suppliers or running basic sourcing events for direct materials)? For example, can they manage n-tier supply risk (or at least supplier risk)? Can they optimize purchased inventory? Can they support collaborative supply planning with suppliers? Can they help orchestrate inbound fulfillment? Can they enable Design-for-Supply scenarios?

I attended Coupa’s annual Inspire conference this year where the consensus of such a move was ‘cautious optimism.’ For more on transcending spend management to supply [chain] management see our PRO analysis here. To wit, “spend is what you pay and supply is what you get,” and Coupa, by way of example, has certainly made a strong leap in getting more supply-capable with its newest set of capabilities acquired from supply chain analytics vendor LLamasoft.

Many folks might ask what a nice “business spend management” vendor (like Coupa) that is skilled in managing RFQs, contracts, requisitions, POs, invoices and payments is doing in a world defined by demand/supply planning, inventory optimization, network design, inbound supply orchestration, logistics, digital twins, supply chain risk, ESG, and other areas — across an n-tier supply network. It’s a fair question, and similar to one that I asked Ariba when it tried to have a supply chain story by partnering with i2 Technologies over 20 years ago. That move was short-lived and Ariba’s move into supply chain management (SCM) only credibly happened years after its 2012 acquisition by SAP. Ten years later, that integration is still ongoing within SAP’s application portfolio and also the “business network” area, but the customer demand is clearly there, and the SAP Ariba Supply Chain Collaboration (SCC) product has been very successful for a reason, including the need for supplier collaboration within product sourcing, supply planning and PO planning/collaboration.

But even though the initial reaction from many pundits and practitioners alike view this as a head scratcher, I actually don’t have that concern here at all because this is actually a long-game strategic move that isn’t just a “check the SCM box” move or a “feature 500” tuck-in. Some LLamasoft customers have certainly been vocal with Coupa about their requirements for continued support and investment in the LLamasoft technology assets, but there is also cautious optimism. I was talking to a Spend Matters client that is also an SAP shop which also uses LLamasoft and Coupa BSM (for P2P), and they are hopeful about having both competitive options and a voice in directing how these pieces can work together in an optimized way.

At the same time, Coupa will need to demonstrate its ongoing commitment to SCM (especially on the inbound side) and be more explicit to supply chain practitioners where the firm will deeply compete and where the synergies will be. For example, I don’t think Coupa will try to invest in LLamasoft to catch up and compete within the core integrated SCM planning suite market geared towards S&OP/IBP. It will, rather, continue its focus as a SCM-focused analytics platform that performs next-generation spend/supply analytics (e.g., “opportunity analysis on steroids” within a strategic sourcing process) that can be used within broader processes for source-to-pay, design-for-supply, ESG, supply chain risk, design-to-value, supply network redesign (e.g., nearshoring/multi-sourcing).

SCM vs. Procurement

Although SCM is a larger animal than procurement, there are a lot of common DNA strands and alignment areas with direct procurement. For example, consider that truly strategic sourcing includes re-designing the extended supply network and not just single-supplier or even single-category focus on just the commercial elements of a relationship. The area of deeper supply network intelligence helps not only to increase resilience to reduce risk, but also drive more impactful “opportunity identification” and unlock more economic value at the time of sourcing or during design. Procurement typically tries to maximize “bang for the buck” by decreasing outgoing bucks (spend) and increasing the “bang” (current/future supplier performance), but the larger prize is to maximize risk-adjusted supply [network] performance beyond supplier performance in order to maximize the performance of the n-tier network.

So, if the game is truly about “supply chain vs. supply chain” vs. just tête-à-tête between single firms, then that game shifts to continuously designing the network as a whole rather than just the products and services delivered by current direct suppliers within the current network. If supplier spend is like a vehicle’s exhaust, then you certainly need to clean up the “gas” (data) and oil leakage (value leakage), but the bigger picture is that the “supply”/suppliers (the engine/components) and the supply network itself (the vehicle) need excellent design!

“We’re going to need a bigger [data model] boat”

Pardon the Jaws reference, but over five years ago, we strongly argued for this need of an n-tier supply chain information network architecture to make spend management be truly integrated with supply management, where procurement needs deep outside-in n-tier supply chain intelligence for risk reduction and value improvement rather than just single-tier market intelligence to drive better commercial agreements. We posited that “sustainable and actionable supply intelligence is not created from simplistic information subscriptions or from PowerPoint documents, but from purpose-built analytics that sit on top of a robust information model. In the supply chain, that information model must inherently model the physical supply network.”  

And, in that PRO series we also called out specific requirements such as:

• “An extended supply network model for not just rapid planning and execution but for rapid and predictive analytics for network redesign, risk management and opportunity identification
• The importance of a robust supply network information model that mirrors the physical/labor supply network
• Five key characteristics of such an information model to augment traditional sourcing, contracting, and supplier management models …”

Coupa’s LLamasoft acquisition in November 2020 (valued at roughly $1.5 billion) was a very bold move, not so much because it brought Coupa a marquee customer base for “landing and expanding.” In addition, it provided Coupa with a 150+ bench of supply-chain-savvy data scientists and a portfolio of granular analytics via a “low-code” analytic app development platform. The platform contains a rich library of domain-specific algorithms built on top of comprehensive analytic data models related to n-tier supply networks.

This capability stack will increasingly inject insights, especially “community-based” insights from Coupa’s community.ai strategy of cross-customer data aggregation, normalization and anonymization. Data privacy is critical here, and the effort must be treated with care and pragmatism given customer hesitancy in sharing their data related to critical supply chains (e.g., Elementum’s story was a perfect example of this). Data concerns notwithstanding, what’s attractive about the acquisition strategy is that the analytics-centric platform acquired from LLamasoft offers the benefit of extending core Coupa S2P application suite without having to radically expand and deepen the native data model of the suite itself at least in the short-to-medium term.

Can the identical twins of Supply and Spend, too often separated at birth by functional silos, be reunited?

As an aside, grant me the liberty of a short personal digression on the issue of procurement vs. supply chain and spend management vs. supply management.

If you think that high-end SCM analytics have little bearing on procurement, then you might want to “broaden the aperture” a bit. Trust me on this. I was, and still am, a “supply chain guy.” My college senior project was using optimization algorithms to redesign the extended campus mail delivery route. In industry, I custom-designed finite scheduling systems at Timberland, and in consulting, I did multiple projects in network design, inventory planning, manufacturing simulation (and expert-systems-based white-collar workflow simulation), MRP systems (no ERP back then!), JIT implementation, warehouse management, and more before falling into the world of strategic sourcing transformation. Like many supply chain folks who accidentally end up in the procurement area, I previously had some bias regarding the procurement function as just “doing deals and pushing/chasing POs.” Yet, the “strategic” part of “strategic sourcing,” when viewed as broader supply management that extends up the supply tiers beyond the internal supply chain, had turned the tables on me to the point where most of SCM is getting relegated to S&OP supply/demand “feeds and speeds” (i.e., optimizing resource/order planning and execution) within an existing network rather than a broader supply network transformation effort.

SCM and BSM: twins separated at birth and the chance to reunite them

So, how can these areas converge? Well, I actually had a chuckle when looking back at a conference presentation that I gave almost 20 years ago that put forth the design ideal of “real-time extended network design” down to a SKU level that would integrate “opportunity identification” in an n-tier sourcing process with n-tier network design that was, and still generally still is, done only within the internal supply chain at a product family level and on an episodic project basis. The siloed domains of BOM-based direct materials sourcing, broader strategic sourcing (at a portfolio level), transportation sourcing (e.g., using bid optimization), supply chain planning (e.g., network design, supply planning, transportation planning), and even corporate strategy were, and still are, highly disconnected. This is the untapped opportunity still remaining poorly addressed, and it’s even more challenging when you bring risk management into the equation.

When viewed more broadly, truly strategic “supply management” is about safely and cost effectively tapping supply markets for innovation, including the design of the n-tier supplier network that makes up the n-tier supply network AND enabling the orchestration of supplier/partner interactions with stakeholders (e.g., 3PLs and contract manufacturers) across a massively complex set of digital ecosystems. Omni-channel fulfillment outbound serving the customer is definitely hard, but so is omni-channel sourcing and category management for designing/orchestrating inbound supply. To paraphrase the late General Omar Bradley, amateurs talk about customer strategy, but professionals talk about the logistics of predictable supply (and cost-to-serve). This duality of demand and supply is also apparent in Coupa’s stated focus on “Demand Modeling” and “Supply Chain Design & Planning” capabilities being grafted into the Business Spend Management offering to create deeper predictive insights on demand to better manage ALL spend/supply, not just direct. Not all indirect spend is simple and it also needs better “spend planning” and the ability to make spend management transcend S2P to a broader “plan-to-pay” scope.

Can Coupa do Supply?

Coupa uses the “BSM” moniker, but most folks, including us, look at it and its peers primarily as the source-to-pay (S2P) area, although we’ve been covering expanded business process focus with the emergence of some “Alt Suite” areas. For a quick rundown on the direct materials space, I wrote a two-part series (Defining and digitizing direct procurement Part 1  and Part 2) on the space in general with a graphical framework that drills into four major domains and over two dozen sub-areas, but for those who want to see how the S2P players stack up, our TechMatch solution benchmarking cockpit has a direct materials “persona,” built up from the 500 requirements in our SolutionMap benchmark (it’s only $2,500 for corporate practitioners, and we also have different benchmarking options of this for consultants, vendors and investment professionals). There are also tons of best-of-breed players that we’ve analyzed, but two notable ones that come to mind are SupplyFrame and LevaData.

For Coupa’s part, it started in the indirect space, and yes, direct is more complex on average (being part-and-parcel of the supply chain), so, it’s nice to see Coupa voting with its wallet and more forcefully committing to supply [chain] management, especially “Resilient and Sustainable SCM” that it signaled at its Inspire event. We do feel that SCM is, however, clearly more than a  “persona” extension of “Business Spend Management,” and there are numerous personas within the broadened scope of SCM. Coupa has its work cut out for it to better align supply and spend, and it’s very early days for the firm in this convergence area, especially since it is theoretically the domain of the mega ERP and SCM players. Of course, theory is not reality, and no single provider really provides rich n-tier supply/spend management capabilities out of the box in a singular harmonized data model and associated platform and application stack — although GEP is clearly on its way here in this journey with its organically developed SMART/NEXXE platform.

In a Spend Matters PRO brief, I share what I learned at Coupa Inspire and also take stock of how well Coupa is addressing seven key LLamasoft integration areas that we spelled out immediately after the acquisition was announced. I also share some thoughts on why the LLamasoft acquisition is so strategic to Coupa (beyond just the process footprint), but also why the associated complexity brings a new level of capabilities and value (i.e., it’s sort of like moving upwards and rightwards on the “not dead yet” Kraljic Matrix — higher complexity and higher economic value) that sophisticated practitioners (and vendors) should pay attention to. For Spend Matters subscribers, you might want to grab a coffee before going into this deep dive!  And you can dive in right here.

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