E-Book

A manufacturer’s guide to navigating the and sourcing technology landscape

Sourcing and procurement technology continues to evolve, creating new opportunities to save money, improve supplier performance, and make better products. In this eBook, learn what the newest procurement tools can do and gain a better understanding of how to move beyond indirect spend management to the direct goods that impact the entire product lifecycle.

Plus:

 Know how to categorize procurement and sourcing products

 Learn about advanced e-sourcing techniques like finance

 Understand the tools for managing supplier performance and risk

 Read how ConAgra innovates with supplier relationship management (SRM)

Sponsored By:

SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape Table of Contents

Choosing the right sourcing and procurement modules for manufacturing

Experts say latest e-sourcing tools help turn strategic suppliers into partners

Experts outline strategies for e-procurement software ROI

Supplier relationships may be the critical factor in e-procurement success

Resources from IQMS

Sponsored By: Page 2 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

Choosing the right sourcing and procurement modules for manufacturing

By Jason Busch

Procurement and sourcing software for manufacturing can be quite confusing. The broad array of applications can sound like alphabet soup even to experts, let alone the uninitiated. The picture is complicated by the nuances of procuring not just indirect goods and services, but the direct materials to be used in manufacturing.

How confusing can it be? Start with the diversity of spend visibility and analytics tools, which has at least a half dozen distinctive types and more than 50 providers. Then add the entirely separate challenges of eProcurement, Electronic Invoice Presentment and Payment (EIPP), supply chain finance, and e-sourcing, which includes general platforms and those specifically for direct materials. And don‘t forget the need to investigate such separate -- but no less important -- applications as contract management, supplier performance management (SPM), supplier risk management (SRM), and supplier information management (SIM), also called supply base management.

Moreover, these applications don‘t begin to address supply chain functions that increasingly overlap with sourcing software and procurement software, such as total cost management, decision optimization, management, supply/demand planning and supply chain scenario analysis. Layer on top of all this the confusing morass of delivery options -- for example, on-premise, hosted, single-tenant Software as a Service (SaaS), cloud computing, and the like -- and the procurement sector becomes even more confusing.

Procurement software by the slice

I like to simplify the equation by dividing sourcing and procurement technology into four categories: sourcing and decision support; spend and contract visibility; procurement and payment; and information, risk and performance management. The categories often map to how manufacturers make procurement spending and platform decisions.

Sponsored By: Page 3 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

Sourcing and decision-support applications deliver basic and advanced capabilities for sharing information and negotiating with suppliers, managing categories and commodities, and optimizing award decisions. These applications include what are known in the industry as request for information (RFI), (RFP), or request for quotation (RFQ) -- collectively, RFx along with /sealed bid, sourcing optimization, category management, and commodity management. Vendors view the latter subcategory as distinct. Some sourcing platforms also include elements of product lifecycle management and total cost management.

Spend and contract visibility includes the following:

• Data management • Spend visibility, including data acquisition/extract, transform, and load (ETL), as well as data cleansing, classification, and analytics • Contract management • Trade/compliance tools

You can‘t get all of these from one vendor, but it‘s a good idea to tie together spend and contract visibility to manage both sides of the buying coin. This helps to ensure you get what you bargained for, including all the appropriate terms and conditions.

Procurement and payment applications include eProcurement, EIPP, scanning and OCR for invoices, network connectivity to suppliers, and the basic portal, registration, and workflow features needed to facilitate them. This is the most mature market. It is also the one where ERP vendors offer capabilities closest to the quality from best-of-breed vendors, although many gaps remain.

The last category, information, risk and performance management includes SIM and SRM as well as tools for supplier implementation, performance and development. This is the least mature category. Vendor offerings vary widely, and manufacturers often tackle these solutions one at a time instead of looking at the issues holistically.

Sponsored By: Page 4 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

Each of the four categories has its own selection criteria. At this stage of the market, there is no universal approach, and it‘s impossible to standardize on a single vendor -- even an ERP provider -- for sourcing and procurement.

For a better understanding of all these factors and advice on which vendors to shortlist in each category, check out Spend Matters (www.spendmatters.com) or download our free Compass Series research at www.spendmatters.com/library/index.cfm.

About the author: Jason Busch is Principal Analyst at Spend Matters and Managing Director of Azul Partners (www.azulpartners.com), which has ownership and management interest in a range of media, publishing, and advisory sites and firms.

Sponsored By: Page 5 of 17

SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

Experts say latest e-sourcing tools help turn strategic suppliers into partners

By David Essex, Site and News Editor, SearchManufacturingERP.com

Purchasing supplies over the Internet started in the mid-1990s when the first sourcing software -- predecessors to today‘s e-sourcing software -- brought buyers and sellers together in virtual marketplaces. The idea was that by aggregating their purchases of so- called indirect goods and services, manufacturers could get volume discounts and be in a stronger position to negotiate better prices.

But with most of the easy money already being saved on such commodity items as office supplies, manufacturers must use more advanced techniques to achieve further gains, analysts say. So vendors have added strategic sourcing tools to help companies incorporate factors like supplier risk and environmental compliance into such critical business processes as new product development.

Although some manufacturers have extended their sourcing processes to direct inputs such as raw materials and subassemblies, ―companies are still learning to understand that their sourcing strategy can make or break their company,‖ said Mickey North Rizza, research director at Gartner Inc.

What is e-sourcing software?

Now often called e-sourcing, the technology can come as a standalone product or as part of a procurement software suite and is sold by ERP vendors or any one of several dozen niche players.

E-sourcing tools are supposed to save money by providing a ready-made community of potential suppliers along with negotiating tools for arranging deals. Basic functions include an RFP or RFQ process; reverse auctions, in which suppliers bid on contracts; and a mechanism for awarding the contracts. ―The big role of these tools is that they‘re a catalyst for a fundamental change in the way that you buy stuff,‖ said Duncan Jones, principal analyst at Forrester Research. ―It forces you to do things properly.‖

Sponsored By: Page 7 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

But many e-sourcing products now let buyers rate suppliers not just on price but on intangibles such as reputation for quality. ―The e-sourcing tools are getting more sophisticated in how they take account of that in the sourcing process,‖ Jones said. Some also help optimize contracts by, for example, dividing them among many suppliers.

According to analysts, e-sourcing vendors have been acquiring or developing products that perform other strategic sourcing functions, including:

• Supplier market intelligence and discovery – industry news, stock brokerage reports, and other information providing clues to a supplier‘s financial health. • Spend visibility and analysis (spend analytics) – a database of purchases and suppliers with an analytical engine for finding savings by consolidating purchases from different departments, for example. • Supplier performance and risk management – mechanisms for measuring and improving supplier performance and estimating the risk of failure. • Contract lifecycle management (CLM) –software for managing supplier contracts, including negotiation and compliance monitoring.

Only a handful of vendors sell their software on-premise. Almost all new e-sourcing deployments are in the software as a service (SaaS) delivery model, which makes it easy to run proof-of-concept trials, according to Jones. He said several companies told him they saved money during their trials. Many manufacturers are finding that e-sourcing fits nicely into their SaaS strategies as an on-demand complement that extends their on-premise ERP, North Rizza said.

Supply chain financing, collaboration grow in popularity

Vendors and analysts both say the deep recession and credit crunch have driven interest in strategic sourcing software.

The price competition manufacturers wanted from e-sourcing has become a double-edged sword, as they realize that some suppliers won‘t survive further erosion in profit margins. With less money coming into their own coffers, manufacturers seek to extend payment terms from the traditional 30 days up to six months. Suppliers, meanwhile, want to get paid

Sponsored By: Page 8 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

faster than before. As a result, Jones said, more manufacturers are using e-sourcing‘s performance and risk management features to predict the impact of a supplier going out of business.

Many sites have financing mechanisms built right into them for tweaking payment terms to improve cash flow without squeezing suppliers too hard. Some suppliers use online exchanges to offer buyers 2% discounts if they pay within 10 days, North Rizza said -- and even more for paying sooner.

In effect, times of crisis are driving manufacturers and suppliers to become partners, and the more advanced e-sourcing suites all come with collaboration modules to facilitate the relationship.

A small number of these integrate with product lifecycle management (PLM) systems, allowing manufacturers to invite suppliers into their product development process. ―We continue to see PLM and sourcing functionality come together,‖ North Rizza said. The idea is to connect suppliers with key stakeholders in such departments as design, engineering, marketing and finance. But Gartner has observed that many companies use other collaboration tools to stay connected with suppliers, she said. The point is the relationship, not the technology.

E-sourcing buying advice

North Rizza advises having a clear idea of business needs to decide how complex an e- sourcing tool is necessary.

―For instance, if you have a heavy supply chain business dependent upon many modes of transportation and an immense amount of lanes, you might need a very complex sourcing tool,‖ she said. ―But if you have two package services and it is pretty straightforward deliveries, you may not need the additional algorithms and sorting features found in more complex sourcing solutions.‖ She added that many companies use sealed bids instead of reverse auctions, an approach that is achievable in some lower-priced tools with fewer features.

Sponsored By: Page 9 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

Manufacturers should identify problematic spending categories before choosing an e- sourcing tool, Jones said. ―Is advanced optimization on multi-line tenders more important than advanced reverse auctions?‖ he said. ―Can I stick with arms-length negotiations, or do I need a more collaborative buying process linked to product design?‖

Jones tells companies to consider the skills of their purchasers before deciding whether to develop advanced e-sourcing expertise in-house or have the vendor or a consultant manage auctions and other tasks. Vendors vary in the quality of their service arms and relationships with ―transformation consultants,‖ he said. ―CPOs that really need to transform their whole function may prefer to pick a consultancy first and then let them help choose the tools, rather than picking a tool and then looking for who can implement it.‖ Jones also suggests scrutinizing a vendor‘s ability to provide tech support to suppliers during auctions.

Sponsored By: Page 10 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

Experts outline strategies for e-procurement software ROI

By David Essex, Site and News Editor, SearchManufacturingERP.com

Whether they‘re using e-sourcing software to save money on pencils or line up high- performance transmissions for the year‘s hottest convertible, manufacturers can take proven steps to boost the return on investment of their e-procurement software, according to analysts.

Business alignment, stakeholder buy-in and effective training are the cornerstones of success, according to Mickey North Rizza, a Gartner Inc. research director who wrote a five- part series on sourcing excellence based on interviews with 70 chief financial officers and chief officers.

North Rizza found that companies had long used the basic e-sourcing tools of requests for proposals and auctions to cut sourcing costs and cycle times by up to 20%. Yet most were still giving away another 30% by misaligning their procurement organizations and technologies with their businesses. Many weren‘t using more advanced strategic-sourcing tools like spend analytics and supplier performance management, and most hadn‘t even thought of collaborating with suppliers to find further savings.

North Rizza advises manufacturers to start with a clear idea of their business objective -- whether it is bringing stakeholders together, improving usability or analyzing purchases faster -- before implementing the technology.

―As they bring new users on, what‘s the end game they‘re trying to get to?‖ she said. ―Is all of that helping me provide value, and what does that value look like? For some people, it‘s just price.‖

Opportunities in strategic sourcing

Some vendors and analysts limit their definition of e-procurement software (sometimes called ―e-purchasing‖) to transactional steps like invoicing and payment, while e-sourcing

Sponsored By: Page 11 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

software handles the planning and collaborative aspects of working with suppliers. But the categories are blurring, with ―e-procurement‖ increasingly used as an umbrella term.

The most sophisticated software applies analytics both to purchases (―spend,‖ in procurement parlance) and suppliers to help manufacturers optimize sourcing decisions, and contract lifecycle management to ensure compliance. Increasingly, all three come bundled in suites, a minority of which specialize in services procurement or integrate directly with product lifecycle management (PLM).

Owning a complement of suites, each dedicated to a vital link in the supply chain, can provide valuable controls to manufacturers, especially those that outsource production, said Kevin Keegan, a director at PRTM, a management consulting firm with U.S. headquarters in Washington, D.C. There might be one suite for purchasing, another for spare-parts planning, and a third for optimizing parts inventory, all from different vendors.

―We see more and more [manufacturers] buy into the integrated suite sales model,‖ Keegan said. ―People want a single tool source to manage the risk of purchasing, warranty obligations and turns of the inventory they are obligated to own.‖

Additional gains are possible by integrating PLM and e-sourcing, which lets manufacturers and suppliers collaborate around a common bill of materials, Keegan said. The information helps engineers optimize designs around available parts, and tells them when parts have become obsolete if a design is later reused. Engineers can also use the system to check the field-failure data of parts, and spot over-reliance on unique parts that are at risk of failing into short supply. All this integration depends, however, on the OEM and contract manufacturer having compatible software, and companies are often challenged to set up a sustainable process for maintaining data accuracy, Keegan said.

Nevertheless, many of the tricks for improving ROI aren‘t based on technology, though it plays a supporting role.

―An advanced technique we have seen is to award service contracts like field repair for a half-year at a time in competitive markets, and to split the award between two players

Sponsored By: Page 12 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

where the one meeting service agreements at the best price wins the difference,‖ Keegan said.

For example, the manufacturer would award 40% to each contract, with the better of the two suppliers getting the extra 20% of volume. ―Either can get the extra 10% volume in the semiannual rebid,‖ he said. The IT department must then make sure the e-procurement software awards the work according to the agreed-upon split.

―Another advanced technique is to bundle new-build and spare-part ,‖ Keegan added. ―This typically lowers the cost of spares,‖ he said, by helping manufacturers get above minimum-order thresholds or qualify for volume discounts. Another technique is to negotiate price and supply availability together, which provides some protection if a part goes on allocation or is otherwise available in lower supplies than the manufacturer needs.

Keegan said that before buying e-procurement software, manufacturers should define their business requirements and identify the network of OEM partners they need to integrate into their procurement process, including parts suppliers, third-party logistics providers (3PLs), and contract manufacturers. Then they should address the resulting requirements for data access, security and latency, and map out which e-procurement suites can meet those needs without customization. ―This ensures the IT is set up efficiently and also typically helps to ‗future proof‘ the system as the business grows and changes,‖ Keegan said.

Sponsored By: Page 13 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

Supplier relationships may be the critical factor in e-procurement success

By David Essex, Site and News Editor, SearchManufacturingERP.com

For ConAgra Foods Inc., the Omaha, Neb.-based purveyor of such household names as Hunt‘s, Orville Redenbacher, and Chef Boyardee, supplier relationship management (SRM) is not just a sourcing strategy, but a catalyst for innovation.

Meeting in frequent brainstorming sessions, ConAgra procurement executives and suppliers co-developed a mono-layer plastic ketchup bottle, launched in 2007, that is cheaper and more recyclable than the standard, three-layer kind. Suppliers are also coming up with ways to take costs out of the supply chain, from procurement to manufacturing and logistics, said D.K. Singh, ConAgra‘s senior vice president and chief procurement officer.

―This is much more than just the procurement function of negotiating with suppliers and saying, ‗Give me 5% or 10%,‘‖ Singh said. ―It‘s taking complexity out of manufacturing.‖

Supplier relationship management makes the difference

SRM experts say ConAgra‘s carefully planned approach to supplier relationships (see sidebar) is the sort of collaboration needed to optimize procurement processes and technologies. It runs counter to the traditional attitude of many procurement organizations, which see their role as squeezing suppliers on price, according to John Henke, professor of marketing at Oakland University in Rochester, Mich. The confrontation style often backfires by making suppliers less cooperative. ―They say, ‗Screw ‗em—they screwed us, we‘ll screw them,‘‖ Henke said.

The key is to build trust between the manufacturer‘s procurement office and its suppliers, a conclusion Henke reached over 20 years of surveying supplier likes and dislikes for his consulting firm, Planning Perspectives Inc.

Sponsored By: Page 14 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

―What we have found and we have proven is pressure has nothing to do with the relationship -- it‘s how it‘s carried out,‖ he said. ―As the pressure goes up, there is no impact unless the customer applies the pressure in an adversarial manner.‖

If suppliers are encouraged to collaborate with manufacturers and given the technology to do, so they're more likely to participate in product development and cooperate in driving costs out of the supply chain, Henke said.

―When you get a stronger, more trusting relationship, suppliers are more willing and able to give better prices because they see it as being an investment in the future,‖ he said.

E-sourcing and e-procurement tools containing supplier performance management (SPM) and collaboration features can ―have a rather significant impact,‖ Henke said. Software that just gives suppliers basic information on requests for proposals (RFPs) won‘t do the trick because they can use it to game the system. Cultural change goes along with it; engineers, for example, must learn to share product data instead of holding it close to their chests. The supply chain finance and working capital management features in some e-procurement suites can also foster cooperative relationships because they allow manufacturers to provide financial assistance to suppliers, according to Henke.

Lacking SRM software, some high-tech manufacturers miss out on innovation, savings

Complex manufacturing industries such as aerospace could most benefit from using e- procurement and similar technology to collaborate more effectively, but seem the least inclined to do so, according to Katherine Kawamoto, vice president of research and advisory services at the International Association for Contract and Commercial Management in Ridgefield, Conn.

The reasons could be generational or a result of the engineering worldview. ―When it comes to simple things like business processes, maybe it‘s too simple [for them],‖ Kawamoto said. ―It seems they don‘t want to go there. They don‘t have what I would call a supplier relationship management team. I have lots of conversations with suppliers in the supply

Sponsored By: Page 15 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

chain who want to do that and are frustrated. They‘re getting told, ‗We don‘t want to hear about it; you‘re the supplier, and your job is to give us what we need.‘‖

But the suppliers, many of whom make complex subassemblies, feel they have a lot to offer. ―Maybe because they‘re so niche, they‘re so focused on their piece of it that they see lots of opportunities,‖ she said, ―but what I was hearing is they‘re not able to even have the conversation. These are very complex communication lines that are not very effective because they don‘t have a common system.‖

Then which platform, specifically, would be best? Kawamoto said the contract lifecycle management (CLM) tools from e-procurement vendors are best used for pure commodities and simple services, but their templates can‘t handle the complexities of contract manufacturing of subassemblies.

Manufacturers use CLM and similar document-management tools for basic tasks like accessing contracts and extracting metadata, ―but they‘re not using it in a strategic way,‖ she said. ―If you‘re forcing the other party to use something they don‘t want to use, they‘ll find ways to go around it.‖

Kawamoto said general-purpose web collaboration and document-management platforms -- like the one she used for RFPs at her previous employer, NCR -- can provide a basic link with suppliers, but dashboard-equipped SPM is best. It helps foster relationships by letting companies rate suppliers on innovation, rather than just price, and give them useful feedback.

This kind of collaboration is necessary for getting more from e-procurement tools. ―You‘re limited in cost savings you can achieve year over year,‖ Kawamoto said. ―Co-creating -- co- engineering -- is really going to become much more important.‖

Sponsored By: Page 16 of 17 SearchManufacturingERP.com E-Book A manufacturer’s guide to navigating the procurement and sourcing technology landscape

Resources from IQMS

EnterpriseIQ Industry Specific ERP and Manufacturing Software Solutions

Manufacturing ERP and Supply Chain Software Solution from IQMS

EnterpriseIQ Manufacturing Software Solution

About IQMS

IQMS offers the innovative EnterpriseIQ ERP software for the manufacturing industry. Designed as a scalable, single source solution with multiple location, language and currency capabilities, EnterpriseIQ is the best industry specific solution available.

Sponsored By: Page 17 of 17