Friday Rant: Unilever and Beyond -- The Rise of Purpose-Built Procurement Applications (Part 1)
If we look back the history of spend management tools in the past decade, we've seen a constant march to sameness from providers. Far too many vendors have been racing in a functional parity derby, jockeying their applications horses to a type of sameness designed to be the 80% solution -- inclusive of software and sometimes services -- that organizations must fit their processes around (at least in the case of more sophisticated buying organizations who have a point of view over what an application should do). As an example, in the area of spend visibility, one of the largest providers in the broader sector has designed a data acquisition process for a typical buying organization with specific system request fields. Yet when a more sophisticated company worked with this provider and sent over extensive AP and invoice line-item level details from across their spend categories, the initial situation was one where the vendor had no idea what to do -- overwhelmed with the extensive nature of the datasets that their "average" customer would never conceive of shipping off. Of course, it is precisely invoice-level line item detail which can enable greater visibility into spending history and the best possible sourcing and category management strategies.
This is just one example. It would be possible to pick on nearly every major vendor by name with a particular pet peeve such as this. Yet some organizations are pushing their providers to move in more advanced directions to build what I'll call "purpose built applications". On a basic level, this might be spend analysis for advanced procurement organizations (maybe even on a category specific level in terms of field requests). But a more interesting case is what Unilever has done in the transportation category area in working with BravoSolution. I had the chance to listen in on a Unilever presentation earlier this year concerning their transportation management center, which got me thinking about the potential for more companies to demand purpose-build solutions that aren't designed for the masses, but rather more advanced needs and requirements, many of which are often customer specific.
Unilever identified that transportation spend would be a strategic category for their procurement and operations teams to manage more effectively. It represented not only a large spend area, but was "critical to good customer service" while enabling sales support, promotions and broader supply chain efficiency. The biggest challenge in the area historically, from a sourcing perspective, was certainly savings erosion. For one, awarded carriers often would not accept tendered loads and non-compliant carriers were often used. There was also a lack of savings because they had no consistent means of tracking compliance. Moreover, Unilever was always fighting a moving target -- new lanes would emerge overtime as partners changed their networks, volumes would also shift based on production changes as well as demand, new business units would introduce additional complexity and new geographies would bring expanded challenges.
At Unilever, contracts were often stored in file cabinets or, in other cases, were non-existent. And course you can guess operating system and application for managing the category -- Excel. Moreover, getting data out of their transportation management system (TMS) proved as challenging as any endeavor in effectively managing the category.
In short, Unilever needed a new sort of spend management solution specific to their transportation needs. It would not just include sourcing capabilites -- or advanced sourcing for that matter. Nor would it only include spend analysis or stand alone contract management. It would have to incorporate a range of requirements including carrier discovery, sourcing optimization, contract / rate management, routing guides, load scheduling, payment/claims process and, of course, compliance and performance management. It would also have to provide basic administration: the ability to manage shipment specifications and carrier profiles (i.e., supplier management), and institutionalize and provide a means to share the firm's broader knowledge across its operating units on how best to effectively manage the broader and expanding category.
Next week, we'll explore the purpose-built application Unilever implemented in more detail and establish why even best-of-breed stand-alone capability would not do the trick. Indeed, Unilever ended up specifying and deploying something that looks like nothing we've seen in the market because it was purpose-built -- built to their broader category needs around the overall business goals of transportation spend management. This is a trend Spend Matters believes we'll see far more of in 2012 and beyond, especially as more sophisticated companies move down the path of cloud/SaaS sameness for basic spend. Additionally, it's our belief that we'll begin to see where the 80% solution -- even the category specific 80% solution -- comes up short in more and more complex spend areas.
TweetBacks
Y
We have successfully completed about 6 or 7 specific software development projects in the last few months in conjunction with our customers, at their request. Of course we have our own development plan which we pursue, but we are always willing to priorise the needs of others. The knack is meeting the needs of the customer without compromising your overall product. Certainly we would never wish to have multiple instances of our cloud solution to maintain either, so it can be challenging.
Being a young and dynamic company certainly gives advantages here. In fact we implemented one advanced development change in under two days. This is not typically something a more established and hence more constrained software provider can achieve. But it certainly makes it exciting times for us. Our current solution is so much more advanced than it was 6 months ago, so I can only imagine where we shall be in the next 6 months!
Yet, the key differentiator between the average and best-in-class performers is not attributed the degree of Spend Under Management; but rather the tactics and enablers that drive the extra percentage points of compliance. Twice as many Best-in-class performers empower their procurement functions with category specific solutions than their peers. Equally important, the ability to report and monitor - as well as build strong business cases based on the numbers – is the key tactics for best-in-class performers when driving for higher compliance (as opposed to just providing easy-to-use end-user procurement tools).
As Jason point out; there is a potential for high returns based on the usage/development of specialized tools that go beyond category centricity but also touches upon verticalization.
The key for procurement professionals who are prodding these markets is to understand where their specific needs can provide the most ample rewards and then have the guts to pursue such a venture (and that sentiment also needs to be acknowledged by the procurement tool market). I suspect we will see the rise of a long-tail scenario of specialized firms who dare embrace these smaller (and in my point of view, way more exciting) business opportunities.