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

Earlier in the summer, I had the chance to catch up with the folks in charge of the former eLance product at Click Commerce as well Fieldglass, another Chicago-based vendor in the sector (note to Spend Management providers: you have an unfair advantage on getting Spend Matters coverage if you're based in Chicago). I've been woefully negligent in writing up these discussions, but I wanted to let everyone know that it's something that I plan on doing this month. What reminded me of the importance of tackling services procurement more seriously on Spend Matters were recent stories I've heard from various sources about lost savings and opportunity in the services Spend Management arena. I personally believe the challenge here is that too few organizations that invest in services procurement realize a full lifecycle investment is needed -- not just better sourcing, requisitioning, or management as standalone objectives. Click and Fieldglass are two of the remaining vendors who have got a good understanding of what it takes to drive services Spend Management success. And I look forward to sharing their approaches on these pages soon.

- Jason Busch

Andrew Bartels of Forrester Research reported some useful figures and analysis on the state of eProcurement in his afternoon break-out session at LIVE. Unfortunately, he also announced that the Forrester / ISM relationship -- where Forrester published and analyzed ISM data on a quarterly basis -- had ended.

But onto Andy's presentation. When Forrester surveyed users, they found that over 30 % of eProcurement implementations had not met expectations (31% were as expected, 28% were slightly above, 6% were well above).

When Forrester set out to analyze why implementations fall short, they discovered that typically one or more issues comes up including:

- Companies start at the wrong place and stop at the wrong time

- Organizations fail to make process changes

- Companies fail to address the people side

- Organizations fail to give enough attention on the supply side

Another interested finding was that the CFO was the key individual for getting process changes made. In other words, without the buy-in of the CFO, most procurement projects were going nowhere.

The good news, however, is that savings from eProcurement are real. According to Forrester, organizations typically save $5-$20 dollars (hard savings) per PO, and improve compliance with policies to 90% (from 40-50%). Organizations also can often identify new opportunities to do better sourcing from eProcurement systems.

How can organizations improve there eProcurement ROIs? Forrester identified a few key areas, a couple of which we’ll explore in more detail in a separate blog entry later tonight or tomorrow. First, companies can improve their ROI through getting resistant suppliers on board. Next, organizations can improve catalog management and coverage. Third, companies can link procurement initiatives with contract management. And fourth, companies can link invoices to reconciliation and payment.

Bartel’s analysis confirms that eProcurement is not slowing. In fact, if you combine his analysis with Ariba’s comments during the media lunch that 40-45% of their pipeline is Ariba Buyer related, the market is looking up for eProcurement initiatives as a foundation for Spend Management.

- Jason Busch

While many organizations focus the bulk of their Spend Management efforts looking inwards to improve internal purchasing and sourcing processes, it’s important to remember that supply markets are in a constant state of change and deserve equal – and in some cases more – attention than internal efforts.

I’ll even go out on a limb and state for the record that the most advanced Spend Management organizations tend to focus as much externally as internally, not just developing suppliers, but understanding supply market dynamics and developing Spend Management strategies. In a recent brief on the subject, Lora Cecere of AMR argues that companies should consider developing Spend Management strategies in the context of supply market direction and that “sourcing processes and technologies are growing in importance as commodities become constrained and prices increase.” If you’re an AMR Subscriber, you can read her brief here.

I was consulting a bit of private research that Ariba recently completed on the subject of recent supply market direction and it suggested that “although inflation continued to have an impact on nearly every major spend category [in 2004], the economy continued to show signs of improvement throughout the fourth quarter.” In addition, “raw material prices started to soften, including oil prices that eventually hit all-time highs in the fourth quarter of last year … there was [also] an increase in demand for temporary labor and marketing expenditures, both indicators of an improving economy.”

Ariba and AMR Research are clearly thinking about supply market competitiveness and dynamics everyday. You should be too. To help, I’ll discuss more about where I go to learn about supply market direction and dynamics in the coming months.

Also, next week we’ll start a series that interviews and asks the hard questions to Spend Management visionaries and luminaries. Stay tuned!

- Jason Busch

For many observers of the retail and CPG industries, category management is nothing new. Retailers have relied on category managers – often employees of CPG organizations – to manage specific categories on their shelves for years. Why? In the consumer world, category management can enable “manufacturers to more accurately judge consumer buying patterns, product sales and market trends of [specific] categories. By emphasizing profits and sales for entire product groups rather than individual items or brands, manufacturers and retailers can often enjoy a longer-term, joint focus on marketing and merchandising.”

While much newer, the notion of category management in procurement is not that different than in the consumer and retailing worlds. In the procurement world, category management brings together the entire organization, not just procurement, to better manage processes, resources, knowledge, and activities for a specific commodity, part, or service category (e.g. temporary labor). Increasingly, companies are taking a category approach to Spend Management to drive sustainable savings and results for both indirect and direct materials categories. Category Management can work in tandem with other procurement strategies (e.g. strategic sourcing) to help achieve new levels of savings and efficiency.

In his report, “Taking Procurement To the Next Level by Going Back to Basics” , Alex Klein hits on an interesting point when he states that: “Very few companies have managed to put in place an integrated cycle whereby every category is sourced periodically (every two to three years), after which ‘day-to-day’ category management is resumed. Where this integration exists, the two processes start to have a positive impact on one another. Thus, a strong sourcing process will uncover the key performance drivers that need to be managed as part of the category management process, while a strong category management process will provide the sourcing team with the key supplier issues that need to be addressed as part of the sourcing process.”

Reports such as Alex’s are interesting reads, but how does category management work in practice? Let’s take the case of Accenture, the large consulting and outsourcing provider. Accenture realized that it needed a highly tailored approach to managing its own services spend. Focusing on temporary labor to start, Accenture deployed processes and technology that could enable collaboration across the buying process, enforce contract compliance, support multiple pricing mechanisms, and provide significant configurability specifically to drive temporary labor Spend Management best practices to the frontlines of the business.

As Accenture observed, part of taking a category based approach to Spend Management involves building skills and expertise to drive better procurement decisions. But it also involves choosing the right technology. Tim Minahan and Christa Degnan of Aberdeen Group consider category management one of the Seven Habits of highly successful procurement organizations. According to Tim and Christa, organizations should not only focus on developing processes and expertise internally, but should “also demand new category-specific application functionality [from vendors] to satisfy the unique sourcing, procurement, payment, performance, and project management attributes of each spending category.” Tim and Christa have also authored two specific reports that provide some great insights on category management for telecom and contract labor. You can download them for free if you register here.

While we can all agree that the rise of category management is about both process and technology, it’s worth understanding how the two work together. Professor John Hughes outlines some of the key elements of category management as both a functional tool and a business process. It’s worth a quick read if you can spare a few minutes.

Where else can you go to learn about category management? While technology vendors can offer solid advice on how to structure a category approach so specific Spend Management challenges, it’s also worth talking to peers, and benchmarking your category performance. Also, feel free to post a comment to Spend Matters and ask questions about specific category management approaches. As category management is central to Spend Management, we’ll be sure to keep up our examination of the subject throughout 2005.

- Jason Busch