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

This is the first part of a three- or four-part interview series with Avner Schneur. Schneur is the founder, as well as President and CEO of Emptoris, a leading vendor in the supply management arena. I've known Avner since Emptoris was called AvinaMart, which was quite some time ago! Certainly, a lot has changed since our initial introduction.

Spend Matters: In your view, what's the role of Spend Management in organizations today? What's changed in recent years?

Schneur: First, we are not calling it Spend Management. We think that it is the wrong term to call the sector -- it sounds too much like old purchasing. Our philosophy is to view it as supply management because it is different from supply chain, and it is more than just expense management (what we think of as spend management). The term supply management is broader and more strategic, in our opinion.

To answer your question, the way we see it is that a few years ago, the market was initially focused on purchasing and eProcurement -- it was were very tactical and operationally oriented. But quickly, organizations saw the impact they could have through improving their procurement and sourcing functions. There was a transition that happened in the enterprise. This occurred when supply management moved beyond just technology and transactions and was marked by the creation and elevation of the Chief Purchasing Officer (CPO) role.

For executives, this was a new word in the vocabulary. In 2000, CPO might have meant the chief population officer. But with the term, came the elevation of the function and we saw the overall market move into a different phrase which you can measure and see for yourself. If you go to Google and type in "Chief Purchasing Officer" you'll find a hundred thousand plus references -- and this increases on an almost a daily basis. If you did it 3 years ago, it was 1,000 hits. What this tells you that there is an attention span to this thing and that people recognize it. In our research, we’ve also found that the growth of CPO is higher, for example, than the growth of the chief marketing officer. This is further proof that this sector is increasing in importance to senior executives.

Spend Matters: What other progress are you seeing? What is contributing to your success?

Schneur: We really see the procurement organization becoming more professional. For example, the emphasis of the procurement teams we deal with is broadening from transactional to strategic, and the skill sets of procurement teams now include financial management and analysis. In fact, some leaders we see have come into procurement from such diverse backgrounds as finance, business management and management consulting. For us, the beauty in this transition is that the procurement teams better understand the strategic impact they can make on the business, they can better communicate that to the executive board and they understand how technology can be a multiplier on their effectiveness. This is impacting the space and the overall approach we take, and has been a major contributor to our success. And advanced organizations have elevated the function to involve financial executives. In some of our customers, the CFO is very involved. If we look at one of our major customers in the building products sector, the CFO is one of the most active users of our system.

In addition, the footprint of the sector has changed. In 1999 it was all about negotiations and category management -- the reverse auction was the iPod of the day. Now, the footprint is extended and includes spend analysis, sourcing, optimization, supplier performance, supplier management, supplier development, contract management, and analysis. When we receive RFPs today, we see that all of these components are tightly integrated which has definitely changed and plays to our strengths. The fact is that we are leading the market and the gap is increasing. We have 300 direct employees and are in a strong financial position. We pride ourselves on providing innovative solutions.

- Jason Busch

This is the second part of a two-part interview series with Manfred Heil. Heil is Senior Vice President, SRM, at SAP. Formerly, he was an executive in GE’s procurement and sourcing group in Europe and served as CEO and Founder of Goodex, a European sourcing company.

Spend Matters: What's next for procurement? Once you've started with the basics (e.g., spend visibility, eProcurement, strategic sourcing, contract management), how can purchasing organizations continue to create new areas of value?

Manfred: My assessment is that 90% of companies have not yet realized these basics. Our community tends to believe that we are already there. It's almost like a self-illusion. If you look under the hood you will find that major ground work needs to be done. Master data management is still a source of ongoing frustration and misinterpretation in many companies. Compliance management and closed loop processes are often not realized because a zoo of inherited stand-alone applications can’t talk to each other. So cleaning up the existing systems and making them scale is a major topic for the next two years.

We also see a big need to bring desktop applications and enterprise applications together. Today, procurement professionals need to cope with two distinct IT worlds: SRM/ERP on the one hand and Microsoft Office on the other. SAP's partnership with Microsoft is focused on overcoming this. Different user experiences, redundant data entries and process inconsistencies will be history one our joint product "Mendocino" starts shipping in 2006.

Looking even further out, the next major step in evolution will come from a new paradigm in software architectures. Service-oriented architectures will enable companies to design flexible and modifiable processes and IT landscapes, so they will be able to drive their own process innovation as key source of differentiation without jeopardizing the integrity of the system. The contradiction between custom-made and standard will fade

Spend Matters: What is SAP's role in the SRM market? Is there room for vendors and service providers, large and small, or do you expect rapidly consolidation?

I expect both. The market will continue to consolidate over the next two years, but you will also find innovation and we hope that much of this innovation will happen within the SAP ecosystem and on the SAP platform. At SAP, we are evolving NetWeaver to become a true "business process platform". All of our applications will be based on this platform, and we will also make the platform available to other ISVs. Some will choose to complement our solutions, but you will also find competitors adopting this platform. So co-opetition will be reality in the SRM market.

- Jason Busch

This is the first part of a two-part interview series with Manfred Heil. Heil is Senior Vice President, SRM, at SAP. Formerly, he was an executive in GE's procurement and sourcing group in Europe and served as CEO and Founder of Goodex, a European sourcing company.

Spend Matters: Please tell us a little about your background and experience in the sourcing and procurement sector.

Manfred: Back in the nineties I worked for General Electric as the sourcing director for one of their European divisions. We dealt with a complex mix of direct and indirect materials. Back then, GE was following an aggressive acquisition path and we had to integrate an entirely new company every six months. Simultaneously we also drove low-cost-country sourcing -- Welch's strategy was to exploit the crisis situations in South America and Asia so we moved our sourcing volume around the globe wherever possible. Later the first bidding events came up and Welch again hammered all of his businesses to adopt the concept. "Make it auctionable," he said to people who thought certain categories would not fit to the concept.

GE was a great experience for me. We had a strong focus on systems that could flexibly support our strategy of expansion and globalization. Yet, the true success factor was clear direction and leadership from top-management.

Spend Matters: What is your perspective on the current state of SRM and Spend Management? What are the biggest changes that you've observed in the market in recent years?

Manfred: Supplier Relationship Management has matured from a conceptual perspective as well as a systems view. Many companies have gone through a trial phase, doing one-off auctioning programs with best-of-breed applications or via service providers. By and large their early experiences were positive, but they seldom scaled within their organizations. That's why the focus today is shifting towards adoption and integration.

Take the marketplace concept of the late nineties -- back then the promise was to actually find better suppliers over the web, providing value-add services and content. But today, companies simply ask for robust and affordable supplier connectivity, almost like the products provided by the utility industry. The same is true for auctioning -- a few years ago people were crazy about new features and functions in that area, even combining it with simulation and optimization. But honestly, where is the business value of inventing the 400th variant of a reverse auction if you haven't adopted the basics and reached critical mass in your organization?

What began as point solutions for connectivity, negotiations or contracts is now growing together into comprehensive, integrated suites. And those suites have to be integrated into the various backbone systems to make them scalable.

Spend Matters: To what do you attribute SAP’s growth in SRM?

Manfred: We've been growing by 35% in the first half of 2005. Two factors are essential for this growth. First of all, we’ve been investing in the solution and the increasing maturity of our SRM suite has triggered investment decisions within the market. More and more companies are now replacing various point solutions with our integrated suite. Secondly, we have changed our roll-in process and go-to-market strategy to look at SRM as a business topic instead of an IT problem. As a consequence we have intensified our discussions with procurement departments and made a concerted effort to understand the business needs first-hand from end-users. In many accounts we became the trusted advisor of the CPO, not only discussing tools and systems, but having an ongoing dialog around the business.

- Jason Busch

This is the final part of a three-part interview series with Michael Schmitt. Schmitt, who many credit with developing the Spend Management movement, is currently an advisor to Ariba. Formerly, he was CMO of Ariba.

Spend Matters: What's next for procurement? Once you've started with the basics (e.g., spend visibility, eProcurement, strategic sourcing, contract management), how can purchasing organizations continue to create new areas of value?

Michael: Advanced organizations need to look both internally and externally to expand beyond basic Spend Management. From an internal perspective, it's critical to go granular -- look at specific categories, line item detail, etc. Only through getting down to this level, can an organization created a new, sustained level of savings. Also, go deeper on warranty issues, demand usage patters, etc. And consider supplier performance management -- this is where advanced spend analysis capabilities really separate from ERP and data warehouses. What we call "level 4" detail is key. It’s not high level. And it's not in ERP or ERP SRM. With level 4 detail, you've got tools to track contract details and buying invoices and to match them up. You can ask questions like: did I get the right freight (terms and charges) and is the warranty information accurate and stacking up against our contract specifications? In short, this level of information enables you to gain complete visibility between contracts, invoices, and analysis -- across systems.

Spend Matters: What about from an external perspective?

Michael: Externally, advanced organizations need to collect new detail on the open supply market. What are the market conditions going on? Are there new and innovative supply market opportunities? It's essential to continually monitor price points, availability, service levels, and supplier quality on a global basis. This is because change is happening faster than ever before. A supplier might be fine today, but their quality could decline overnight. It happens so fast and new competitors enter markets in a matter of months. This can propose a new risk because traditional suppliers are losing marketshare, which can negatively impact their financial and operationally stability.

Those who have a top notch Spend Management system can monitor and react to internal and external changes and information quickly. Being proactive is critical. Those who are reactive will never take full advantage of the cost avoidance or savings Spend Management can bring.

Spend Matters: Where do you go to learn about Spend Management on the web? What analysts, magazines, etc. do you keep up with?

Michael: Spend Matters is my top destination for quick hits about what is going on. You update more frequently than anyone else and link to what matters. I do read other web pages, news and analyst sites, but besides, I think it is our own networks with companies that can teach us the best. It's critical to stay close to practitioners, to those who practice "Spend Management" in the field. The voice of the customer is really want counts. You can teach them, but they can also teach you.

- Jason Busch

This is the second part of a three-part interview series with Michael Schmitt. Schmitt, who many credit with developing the Spend Management movement, is currently an advisor to Ariba. Formerly, he was CMO of Ariba.

Spend Matters: What was the Genesis of Spend Management?

Michael: Based on our research and customer interviews [back in 2001-2002], it became very clear that customers were looking to develop closed loop procurement technology capabilities, core competencies and processes to drive success, as well as the ability to execute on an ongoing basis.

This helped put everything in perspective for us and laid out a blueprint for Ariba's development. For example, back in 2001 / 2002 our core product, Ariba Buyer, was transaction based. And for analytics we had a partnership with Informatica. We had some sourcing capabilities through our Trading Dynamics and Supplier Market acquisitions. But we needed to enhance, link, and develop all of these areas together to close the loop.

To start, we needed to drive increased visibility capabilities and link procurement and sourcing together, then ultimately combine these capabilities with downstream eProcurement. This led to the phrase: Find it, Get It, Keep it.

Spend Matters: How Far Has the Spend Management Movement Come?

Michael: It’s mixed. Some companies like Exxon Mobile, Astra Zeneca, Merrill Lynch, and others ... they get it 100%. They have rock-star organizations that have realized great results. They've combined world-class teams, people, processes and technology together to achieve huge savings and cost avoidance.

All of these organizations have one thing in common: a centralized procurement function with responsibility for setting standards that can work across multiple decentralized divisions. Leadership is also key. Spend Management leaders target all categories: indirect, services, and direct materials. And they put processes, people, organizational structures and systems in place to do this. Behavior like this leads to great things. Look at Southwest Airlines and their huge cost avoidance by hedging jet fuel. And consider Dell computer who looks at every dollar they spend. This came from top management down into the trenches.

Spend Matters: Are There Any Parallels to Spend Management You Can Think Of?

Michael: Consider what happened with supply chain planning. When supply chain planning came out and got hot in the early to mid nineties, it displaced MRP (which could look at inventory and the cost to get it). But SCP was also about fill rates, customer satisfaction, cost of capital, etc. This brought tremendous results and forced ERP to react. Within a couple of years, there was a new and better way to manage inventory and warehouse distribution. Between 1995 and 2000, there was a total change across all of industry moving to SCP systems.

If you look at purchasing, the change from first generation procurement systems and processes to Spend Management offers a similar value from the change from MRP to SCP. But while there is tremendous value in Spend Management processes, sourcing tools, analytics, contracting and compliance systems, the stampede that happened with SCP is not happening at the same pace with Spend Management. Hence, there are clear winners, laggards and losers. Those who adopt and embrace are at a huge advantage versus those who do not.

- Jason Busch

Later this week, I'll be interviewing Michael Schmitt to get his take on the state of Spend Management. For those who don't know Michael, he was CMO of Ariba for many years, and has always been one of the champions of the Spend Management movement. In fact, some credit him with leading the creation of the category.

I'm curious to get Michael’s take on how the market is evolving. Certainly, much has changed since the Spend Management movement began.

- Jason Busch