I recently came across this article on law.com which points to the rise of strategic sourcing and Spend Management practices in law firms. According to the piece, one firm profiled spends "more than $200 million a year on purchasing goods and services" and a new head of procurement estimated that "he knew he could pare at least $20 million annually from that amount within the first year or two." Now that's a lot of low hanging fruit. But only a minority of the largest law firms are going after the opportunity. The article notes that "perhaps 15 to 20 percent of Am Law 100 firms are tackling this opportunity by hiring someone with corporate experience to rationalize sourcing on a highly centralized basis."

What's to explain the lack of enthusiasm for saving money? When you're charging your partners out at $700 per hour, it's a license to print money. The only more obscene industry when it comes to hourly rates is investment banking (but most of their deals are transaction based, so at least there's some risk element for the provider to justify their fees). In my view, the only way to get the largest law firms to think more seriously about cost cutting is when clients demand more reasonable fees and stop accepting price increeases. Take Wal-Mart for example. I know a laywer from a top East-Coast firm whose hourly bill rate is in the neighborhood of $650-$700 (in New York, fees can reach $1000 per hour). Wal-Mart pays him just around $400/hour. But they pay his firm incredibly quickly and pile work onto them. The cut is a something the firm is willing to take given the size and stability of the client. And hopefully they can make up the difference through smarter sourcing as well.

- Jason Busch

What Will 2008 Bring in the Metals Markets? Earlier today, Lisa Reisman and Stuart Burns penned a thoughtful and lengthy post over on Metal Miner offering up their predictions for the metals markets in 2008. Among the metals categories they take their crystal ball to, the two examine where steel, stainless, nickel, aluminum, copper and zinc prices might be headed to on a global basis. In the same article, they also tackle the impact of a falling dollar and rising oil prices on global metals sourcing. What are some the assumptions driving the forecasts they present in their post? According to the metals blogging dynamic duo, “In the face of a slowing US economy, a mixed position for the European economies and a still strong Asian market, it is a particularly tough call this year to judge where prices will go. Our call is the US will teeter on recession. Europe though restricted by high ECB interest rates will still enjoy some (if reduced) growth providing the Euro/US Dollar exchange rate does not strangle exports. Asia in general and China in particular are still enjoying robust growth. China may well drop from the double digit growth of the last 5 years to high single digit figures but that is still a very significant driver for the world economy and particularly the world metal markets.”

Reading Stuart and Lisa reminds me about how much domain knowledge really counts in analyzing and covering specific commodities markets. Call me biased -- yes, I am married to one of the authors -- but relative to the price alerts and regurgitated crap that only mildly passes for journalism that the trades put out on metals, there's no substitute for the type of coverage that only true industry experience can bring to the table. Seriously, do we really want to know that the sky is falling and copper is up today, or do we care about why and where it might go tomorrow -- and what to do about it from a sourcing and trading perspective?

- Jason Busch

Welcome to the Spend Management Ecosystem

If you're looking for any further company-based scoop on these virtual pages -- or any others -- about the Ariba/Procuri deal, you probably won't find it. The first forty-five minutes of presentations at Empower -- which included keynotes from Mark Morel, Bob Calderoni, and Tim Minahan -- said virtually nothing of consequence regarding the deal or joint vision, other than what has already been disclosed. But it was easy to discern a couple of messages that Ariba and Procuri are jointly trying to push out to the Procuri user community. First, from a semantics perspective, Bob Calderoni did not use the "supply management" term once during his short presentation. Rather, he continued to describe the space as "Spend and Contract Management". Hmmm, as I've mentioned before, methinks Tim Minahan's blog, Supply Excellence, will soon become "Spend Excellence" or perhaps "Spend and Contract Excellence".

[More]

Even though I'm not a member of the SaaS politburo like On Demand junkie Tim Minahan -- who really is betting his retirement and kid's college tuition on SaaS' up-take -- I do count myself a card carrying party member of the movement. Given this, you can imagine I was pleasantly surprised to see Phil Waineright's post over on ZD Net about the growing SaaS market within Spend Management. In his blog, Phil comments that most SaaS supply chain and Spend Management players "remain privately held, including well-funded ventures such as Ketera and Rearden Commerce ... Then there are hosted supply chain vendors such as Mitrix, Emptoris and SAP acquisition Frictionless Commerce. Plus B2B trading services such as GXS. Maybe not a billion dollar sector yet but certainly in excess of a half billion." I know Phil's calculation and analysis is not scientific, but even if 2006 SaaS Spend Management revenue just comes close to $500 million, I'll still get excited. For that's just the tip of what I'm certain is a much bigger iceberg which will save companies significant money and reduce deployment risk over traditional applications. So Phil -- or Tim, for that matter -- my question to you is when will SaaS overtake the installed market in the Spend Management world? Or will it ...

- Jason Busch

I had the chance to catch up last week in Chicago with Henry Hwong, Provade's VP of Marketing. For those who do not know Provade, the provider is a managed services / BPO upstart in the procurement market. You can read an earlier post of mine on Provade by clicking here. While still very much a start-up -- the firm is less than two years old and has less than fifty employees -- Provade is getting some early traction in the market, and has recently closed 2 managed services deals, one with a Fortune 500 high-technology provider, the other with a global financial services provider. The total contract value of both deals is over $10 million.

What I find most unique about Provade is how they have built up their BPO capability on top of an existing Oracle platform. Provade sees no reason to reinvent the wheel from a technology perspective. This is smart in my book -- just look at how much all of the marketplaces and the ICG Commerces of the world have spent cobbling together disparate platforms over the years to build an integrated solution. But even more ingenious is how Provade can help diffuse IT's concerns about BPO by becoming a friend to IT, rather than a risk, given their close Oracle affiliation. After all, how many other BPO providers are 100% capable of hassle-free integration with an Oracle back-office environment because they run entirely on Oracle themselves? Not many, at least that I know of. The Oracle relationship / partnership will no doubt help Provade on the sales front as well, by giving Oracle reps something else to stick in their bag.

For Oracle, Provade represents perhaps the first experiment in building out a Spend Management partner ecosystem. As I've written about before, Oracle is clearly behind SAP in embracing a partner-focused business model when it comes to Spend Management. But perhaps the Provade relationship is a sign of things to come.

- Jason Busch

I just read this short piece in the online version of Supply Management, a UK-based publication. According to the article, the body governing the 2012 London Olympics plans to outsource much of its sourcing and procurement initiatives: "David Higgins, chief executive of the Olympic Delivery Authority (ODA), which is charged with creating the infrastructure, unveiled the plan at a business summit held last week at Canary Wharf ... Lifecycle costing, sustainability, training, health and safety, supplier diversity, fair employment and ethical sourcing were among his key considerations for procurement." In my view, while the Olympics' total spend will probably be small relative to the total dollar volume for similar outsourcing projects in the next six years' time, this high-profile program should lend credibility to the rise of the Spend Management outsourcing movement. And maybe it will capture the attention of a few CFOs looking at the benefits that Spend Management outsourcing can bring.

- Jason Busch

I came across this announcement from Verticalnet today that discusses their new deal to power a Capgemini outsourcing practice. According to the announcement, "Capgemini Energy selected Verticalnet XE for its completely integrated functionality: from spend analysis to sourcing, from negotiation and contract management to e-procurement and catalog management services." While nothing is remarkable about this individual deal, it suggests to me that Spend Management technology vendors are clearly moving into two camps: those who will power the large outsourcers and those who will compete against them. Verticalnet appears to be in the first camp, joining Emptoris, who appears to be the provider with the most traction when it comes to powering larger Spend Management outsourcers from a technology perspective. In contrast, Ariba, through its internally developed capabilities as well as its Alliente and FreeMarkets acquisitions, delivers a competitive complete solution that competes with the likes of Accenture and IBM. Given the expected growth of the Spend Management BPO market, there's most likely room for both models, as well as category specific approaches as well.

- Jason Busch

I just came across this announcement from NewlineNoosh (IMHO someone needs some branding help) noting the firm's work at Unilever North America. According to announcement, "the implementation includes three main components: print management advisory services, print procurement and production services, and Noosh, a robust, underlying software platform." What's interesting about this news is that it follows the announcement of Uniliver's five year deal with IBM (scroll down for link) that aims to "transform and manage strategic sourcing and procurement operations of indirect materials and services for Unilever's North American operations." Clearly, despite a major commitment to a single outsourcing firm, Unilever sees value in working with a specialized solution provider in a specific category. This is good news for other targeted Spend Management BPO providers who now have a case to point to that shows how they can coexist with larger outsourcing and managed services players. In some cases, expertise trumps scale -- even in the outsourcing market.

- Jason Busch

Frequent readers of Spend Matters know that one of my areas of interest is Spend Management BPO, a nascent sector within the broader outsourcing market. It's also one of my big question marks for 2006. So given procurement outsourcing's only moderate growth to date, I read it as a good sign when a young provider is able to raise a funding round to go after the sector. The vendor I speak of is Provade, a focused Spend Management BPO provider that is offering outsourcd procurement services around specific categories including labor, legal, catalog, and facilities management. To keep costs down, Provade is using Oracle's procurement application, while layering on expertise and additional services of its own to differentiate itself in specific categories. To me, Provade's approach seems like a new take on the ICG Commerce business model.

- Jason Busch

I came across this press release from Braintree Group in my inbox this morning, announcing their move into the Spend Management BPO market. According to the release: "Braintree Group's goal is to help companies with the entire lifecycle of BPO arrangements: Setting the strategy. Developing a procurement-to-pay business plan. Defining the need. knowing what to outsource and what to retain in house. Deciding on potential vendors. Managing an RFP selection process. Negotiating the contract for predictable costs and appropriate quality. Selling the decision within the company. Designing the implementation plan. Managing the transition. Monitoring the results."

Now, to be 100% honest, I welcome all vendors who want to serve customers in the Spend Management arena. Especially from a services perspective, it is an underserved market. But it is laughable to me that any offshore firm is claiming capabilities such as "managing the transition" or "setting the strategy" for Spend Management BPO. These are areas where, if it was my spend, I’m not sure if I’d even trust the former Big Fives of the world to get it right. Why? Personally, I believe that to excel at all aspects of indirect BPO, you need to understand the entire Spend Management operation, including direct materials procurement, which is a skill set that very few professionals in the Big 5 have had, at least historically. Because of this, I highly doubt that a boutique BPO provider would have them as well. Hey, maybe I'm being too hard on Braintree. Certainly Pakistan is an underappreciated region from an outsourcing perspective. But to me, when a firm moves from offering call center outsourcing to Spend Management BPO, I'd sooner duck and run for cover rather than be a guinea pig for what amounts to low cost labor arbitrage (which is entirely the wrong approach to outsourcing any aspect of procurement, in my book).

- Jason Busch