Is eSourcing Really Old Hat?

Posted 24/03/2016

Over the next few weeks I will be looking at a subject very close to my heart, the marketplace, benefits and pitfalls of eProcurement and eSourcing applications. To begin with however, I thought it would be interesting to take a look back in time to help understand why the market looks the way it does. 

Every 2 years Gartner publish their famous “Magic Quadrant” for Strategic Sourcing Suites. The 2015 review identified 14 companies, whom it considered to be serious players in the marketplace. Interestingly, despite the impression many of us have that this is a new and dynamic technology, with plenty of start-ups thrusting into the Marketplace; not one of these 14 companies is less than 15 years old, the youngest being Bravo Solutions, founded in Italy in 2001. This led me to ponder what is going on here and if this is a modern procurement transformation trend?

Firstly lets travel back in time to the early 1990’s. Those of us grey enough to have been in Procurement then, recall it as quite a different place from today. Paper was still king, contracts were kept in fire-safes, email was considered more suitable for internal discussions, rather than for official business with suppliers. This doesn’t mean that there wasn’t any electronic business conducted; the more innovative technology companies such as GE, BT, IBM and most of the major car-manufacturers were already using EDI (Electronic Data Interchange) with their suppliers, albeit mostly via one-to-one Private Networks. 

The arrival of the internet changed all this, and in the period from 1994–96, a considerable number of start-ups, such as FreeMarkets in the US and Mercado Eletronico in Brazil, helped to create a new market. Although the fruits of their labours were not immediately apparent, by the end of the decade a large number of online exchanges and industry-focused marketplaces, had launched to which they hoped to attract both buyers and suppliers. A second wave of companies joined during 1999-2001, hoping to benefit from the experience of their predecessors. Tentative moves were also made at this time to use the technology for Sourcing by online Auctions and Purchase Order Transmission. 

Their growth was constrained however by customer reticence, fuelled by tales of poor performance on unreliable platforms, expensive installations and by the dubious legal status of eTransactions, including the insistence of some Government functions on retaining paper evidence for all transactions. Following the collapse of the boom in 2001, many companies went out of business. The truth was that the venture capital behind most of the start-ups had long been used up, and revenues in many cases had been well below forecast. 

However those with deeper pockets and more viable platforms, played a long game, acquiring their floundering rivals, whilst steadily building up traction in the marketplace as Customer interest rose and the legal and regulatory barriers began to come down in the 2000’s.  The value offered also began to rise as they introduced new modules, that progressively enabled automation of the whole P2P process.  At the same time however, there were few new entrants to the marketplace; the costs of start-up and customer expectations were now simply too high.  By the time that the tipping point was reached about 2010, the emergence of cloud-based solutions enabled the final barrier of complex installations to be dismantled. So I think this might help explain why the youngest of the major players is now a mature 15 year old! 

Why is this important? One danger that I can see is that the market could be becoming increasingly supplier led, rather than driven by our requirements as Customers. The products themselves are becoming harder to differentiate, and the pricing and commercial models are converging too. A situation where established suppliers “know” what is best for us, and sell us suites with functionality that we neither need nor want, is to my mind bad business. It may be advantageous to encourage some new blood to shake up the status quo – and in a future blog I will look at some of the potential challengers and how we can encourage them. 

Next time however, we will look at who some of the “mature” leading solution providers are and what they offer.

Tagged by topic: Procurement Technologies , Procurement Transformation

  by Mark Eveleigh

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