I recently had the chance to catch up with a few members of the Everest Research Institute's procurement outsourcing research team. While I plan to write about these findings in the coming weeks, in the meantime I thought it might be useful to highlight some of Everest's latest research suggestive of trends in the procurement outsourcing (PO) market. According to a recent Everest research summary, in 2007, the procurement outsourcing market "continued on a growth path toward wider market adoption. With the number of new contract signings in 2007 matching that of 2006, the PO market is moving closer to entering a 'rapid growth' phase as 2008 unfolds." Everest suggests that, among other trends, we'll see "Emerging buyer adoption trends around transactional PO, end-to-end processes, and 'phased' engagements" rather than simply category sourcing outsourcing programs.

I reckon that as part of these types of programs that we can also expect the A/P and procurement outsourcing link to get closer together in more sophisticated companies either considering a shared services off-shore environment or full-blown outsourcing options. Among other observations Everest makes in this research summary, they suggest that the overall market "had a relatively flat 2007 and PO followed suit" but that the "The PO market is witnessing broad-based adoption across geographies, industries, and buyer segments." Given this, will 2008 be a break-out year for procurement outsourcing? In my book, it's doubtful, but I do expect -- and I agree with Everest -- that we'll see a value proposition shift in many of the types of deals that ultimately come to fruition.

- Jason Busch

This afternoon, I'd like to welcome Kevin Potts from Emptoris to Spend Matters. Kevin is VP of Marketing at Emptoris and he has offered to share his thoughts from the ISM event earlier in the week. Thanks, Kevin, for your contribution.

Two of the hot topics from ISM included sustainability and supplier risk management. Gerd Hofman, Head of Purchasing for Hugo Boss, gave a key note presentation on the role of supply management in creating the "sustainable supply chain." He presented a very eye-opening chart showing that being green does not conflict with stockholder value. According to the chart for the period of January 2006 to July 2007, the EuroStock Index comparison of environmentally-friendly companies rose over 30% while the stock price of less environmentally-friendly companies rose only 22%. He proposed that sustainable supply base initiatives do not hurt stock price and in fact may help them because of the improved brand image in the consumer's mind. While he acknowledged that supply management must continue to focus on typical considerations when making decisions about supply approval (i.e., cost, quality and time to market), he advocated three new "sustainable" criteria -- environmental, social and economic costs (e.g., earnings for workers in developing countries) as important in the decision process. He proposed a three step supplier approval process framework which included (a) pre-qualification or certification, (b) monitoring and (c) audit and assessment.

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I got a couple of emails thanking me for my coverage of Sapphire this week. But guys and gals, I'm not done ... I'm still pulling together a few longer posts that should weave together the major themes from the event along with SAP's SRM 7.0 highlights and direction. So stay tuned. More next week. There's a lot more to discuss.

- Jason Busch

My whirlwind spring conference travel schedule finally ends after my trip to Ariba LIVE next week. I've always enjoyed LIVE because the show is not too big and not too small. Sure, some of it is a commercial, but much of the customer stuff is usually quite useful. LIVE is in Vegas this year -- which I can't stand because I believe gambling is anathema to Spend Management thinking -- but at least the location will give me more an excuse not to cut out of the breakouts to hit the beach like last year (even bloggers need a break sometimes to catch some rays). But seriously, what's on my mind relative to covering Ariba this year? First, I want to come away from the event with a call on whether or not Oracle will finally seal the deal with Ariba in the next 12 months. Many of you have heard countless rumors in the past three years about Ariba and Oracle getting together. I hope to make the definitive call after the event based on Ariba's direction and trading thoughts with a few of the financial analysts who are coming. Personally, I'm guessing Ariba will continue to remain independent, but I'll leave my analysis on this for later. I'm also curious to poll internally and externally whether Bob will be staying with the organization for the foreseeable future (another rumor that's been circulating in the past year).

But much more important from a customer perspective today is Ariba's overall product and solution direction. Personally, I think Ariba has been too quiet on the innovation front for far too long. Now, I'm all for Benjamin Franklin's adage that "talkers are no great doers", but in the software/tech world, you either innovate or become a Computer Associates (and the later choice is one that in a rapidly growing market, no vendor can afford to make). Even at Sapphire, SAP proved their attempt to think out of the box in the SRM space -- whether they can execute is another question. But that's not the point. Ariba, as the largest pure-play in the space, needs to step up to the plate and tell its customers and other attendees what they should be doing tomorrow – not just how to improve the status quo today. And their product and solution roadmap needs to reflect this vision.

If Spend Matters readers would like me to drill down on any particular product areas next week, let me know (post a comment or drop a line). From a solution perspective, I'm planning on doing a somewhat deep dive on Ariba's latest offerings in EIPP, services procurement, spend visibility, contract management and supplier performance, among other areas, not to mention the supplier network, which is always a topic that interests me.

Disclosure: I do not directly hold stock in Ariba or any of its competitors though may own mutual funds which trade in technology stocks. Ariba is, however, a client of my consulting firm, Azul Partners, and a sponsor of this blog, but we also work with over a dozen of Ariba's competitors in a commercial capacity as well. SAP, also mentioned in this post, is a current client of my advisory firm, Azul Partners, though I have not worked with them directly for over two years.

- Jason Busch

Tim Cummins always has creative ways of looking at situations. In a recent blog post, Tim questions whether or not "suppliers will show pity" on the tough times that many procurement organizations are going through. Paraphrasing a statement from a member of IACCM a recent meeting, Tim notes that "our industry, and industries like automotive, have destroyed trust and collaboration (with the supply base). Shame on us. Now, as markets tighten and power moves to the supplier, we will reap the consequences of our behavior." To Tim, this suggests that procurement has "been walking down a blind alley. For all the talk of strategy and of reaching the top table, the reality is that many sourcing organizations have been pushed into short-term objectives to grab price reductions, at the expense of longer-term strategic thinking."

What's the solution? Tim is always nebulous with answers but does offer a few difficult to follow sign-posts that point in the general direction of an answer. To wit: companies "need to redeploy their resources to focus on trading relationship outcomes, rather than the short-term, input based 'savings' mentality. They must oversee contract life-cycles and ensure accountability for results." Unfortunately -- and even though I agree with Tim -- I feel that this type of thinking is out of touch with the reality that many tactical sourcing managers face today. Faced with the double whammy of commodity price inflation / supply shortages and the continuing need to reduce costs, procurement organizations are taking greater and greater risks, often pushing their supply bases to the limit, asking for cost reduction across the spectrum of value-added activities (since they can't get it in the raw materials areas).

- Jason Busch

I'm about to leave Newport Beach, CA to head back to Chicago after 5 days on the road. I just attended the Sourcing Interests Group (SIG) event and came away from the past 36 hours with about twenty pages of notes from various presentations and discussions. All in all, a very insightful time. While I have much to write up upon my return -- including a great presentation on the total economic benefits of free trade -- I thought I'd share a few quick thoughts on what has made this conference different from many I've been to. First, the close knit relationship of the group -- everyone seems willing and interested to share ideas and chat. Even though 350 people registered for the event, it feels like a much smaller group in a good way. Second, the quality of many of the presentations has exceeded that of most events I go to (not to mention the willingness of presenters to answer tough questions either in front of the room or offline). And third, I've found the provider (i.e., vendor and service providers) to be equally engaged in the discussion and not just here to sell (even though there was at least a bit of this in one break-out session I attended, despite SIG's intent to make the event 100% non-commercial).

- Jason Busch

When it comes to naming different modules in an end-to-end Spend Management suite -- or supply management or SRM depending on your persuasion -- there's still quite a bit of confusion around what some modules actually do. Take this recent SciQuest announcement (as reported on in Supply and Demand Chain Executive). In it, SciQuest positions its new "supplies manager" module as the bridge to "integrate e-procurement systems with inventory management and internal supply centers, including storerooms, supply closets and lab freezers, to quickly locate in-stock supplies for faster acquisition." Fair enough, but how different is this than the "supply manager" or "supply management" modules that other vendors trumpet? Completely different, in fact. These module descriptions refer to a general portal of cockpit to manage supplier information (e.g., vendor certifications, insurance / accreditation certificates, scorecard data, etc.) But it would be easy for just about anyone to confuse a "supplies manager" module with this type of offering (only 2 to 3 letters are different). In my view, just as the industry coalesced around the terms "e-sourcing, contract management and eProcurement" we need a similar consolidation of terms to refer to different modules so as not to confuse a market which in many cases does not even know all that is available to them. And let's make sure that each module does not sound exactly like another one that does an entirely different thing.

- Jason Busch

Michel Higgs, a blogger who writes on Purchasing's Blogs, recently penned a post that suggests that certain skill-sets matter over others when it comes the managing a supply chain. According to Michael, "There are only two skills that I see that are really hard to train, so the candidate should possess them upon hire: leadership (some have it and others don't), and tenacity ... Most other skills can be trained or learned (in my opinion). People with these two skills and with the right mentorship have a really high probability to grow in to a really valuable employee. If no one shows up that matches my ideal candidate, I am willing to coach the rest."

To this list I would add "analytical skill" and "intellectual curiosity" in addition to leadership and tenacity (and in fact I would argue, based on one year in ROTC, that leadership can be taught). When it comes to analytical skills, maturation occurs typically in the high school and college level -- after that, if a candidate does not have it, they probably won't develop it. As to intellectual curiosity, this is something a candidate is born with or not. Those who are intellectual curious will not only challenge authority when it needs to be, but will also bring in the world outside to their roles. For example, rather than just pursue an overseas supplier development initiative in a vacuum, they will study the local political and social culture to get the most from their efforts and build bridges with potential suppliers.

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We all knew that India was in the midst of an export boom, but given the country's rising local demands as infrastructure growth competes for resources against the manufacturing economy's insatiable appetite, I'm still surprised India is planning on such a large export percentage increase in a short period of time. According to the above-linked article in the Times of India the government recently "announced an array of incentives in its annual review of the Foreign Trade Policy to achieve an export target of $200 billion in 2008-09 as against $155 billion in 2007-08. However, keeping in the mind the worrying factor of rising inflation, it has removed incentives on exports of cement and steel to boost supply of these commodities in the domestic market ... exports should touch $1.25 trillion by 2020" given an average growth rate of 25% "which is difficult but not impossible" to achieve. Despite India's infrastructure challenges -- if you Google "India Infrastructure" you get nearly 1,000,000 hits which shows you the size of the challenge in an online, metaphorical way -- this is one country I'd bet on for numerous regions in the manufacturing arena including: a commitment to both innovation and intellectual property protection, rigorous and established engineering and science programs that can go head-to-head -- at least on the undergraduate level -- with any other universities in the world. Compared to China in all three of these regards, India is light years ahead. Now only if they could move the cows off the roads (and pave and expand the highways while they're at it) ...

- Jason Busch

Given that I live in a city where an eighteen wheeler recently plowed into an unsuspecting rush hour crowd at a subway stop, I don't take it lightly when I read articles like this one which suggest that Mexican-based trucks may be safer than those domiciled in the United States. The second above-linked story notes that according to the US Department of transportation "Mexico-domiciled motor carriers that have been approved to participate in the cross-border pilot program have better safety inspection records than their U.S. counterparts." If this is not yet another quiver in the arrow-bag to silence the opponents of NAFTA who think that Mexican safety and work standards are a threat to "our way of life" then I'm not sure what is. Si, mi camión es más seguro que su camion!

- Jason Busch