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Report rates e-sourcing, spend analysis and contract management tools

Gartner Magic Quadrant finds plenty of room for growth in market for cloud-based strategic sourcing application suites that can provide increased productivity and cost savings.

Sales of strategic sourcing application suites, which companies are buying to increase productivity among staff, are expected to grow by double digits for the next five years, according to research by Gartner.

Strategic sourcing suites, used mainly by companies with $800 million or more in annual revenues, are a set of integrated and related applications that support a procurement team's work for planning, assessment and performance management. Users include category managers, sourcing managers, contract managers or vendor managers.

According to a Gartner survey that included responses from 193 companies that use the suites, the top three reasons for companies to invest in the suites are to transform strategic sourcing, increase productivity and achieve increased savings.

In an interview, Deborah Wilson, a research vice president at Gartner and co-author of the Magic Quadrant for Strategic Sourcing Application Suites, said the suites are highly flexible and can be deployed as a shared service for contract management tools and three other modules.  A single suite can be used by many different divisions in an organization and deployed across multiple ERPs, even in a very large company, she said.

Deborah Wilson of GartnerDeborah Wilson

"That means it is a great strategic buy, that you can truly pick just one vendor for e-sourcing, contract management and spend analysis," she said. "You don't need to have different ones depending upon your region or your type of business."

"We are predicting double-digit growth for this market for the next five years," Wilson said. "That is mostly in companies that are $1 billion and up in revenue."

Four main capabilities in suites

To be included in the report, vendor suites needed to have four primary capabilities, including contract management tools for documenting and tracking supply agreements and supply base management (SBM), or helping companies solicit and manage supplier information, risk and performance.

The other two capabilities included analysis of data on all types of spending such as inventoried parts, materials or ingredients and e-sourcing for soliciting and evaluating a request for information (RFI) or a Request for Proposals (RFP). E-sourcing supports project bidding where the result is a long-term agreement but generally does not include price checks or requests for quotes, which are activities more commonly supported in procure to pay (P2P) software.

The suites generally replace Microsoft Excel and email. On the whole, the suites meet a company's needs and people are successful with them, Wilson said, but there are opportunities for increased adoption, especially with e-sourcing, which ties together projects, offers reporting and is used by procurement professionals who may be accustomed to the old-fashioned tools.

The Gartner report analyzed 14 vendors and found that BravoSolution, Ivalua and Zycus are the leaders, meaning they execute well on their visions and are well-positioned for the future.  Zycus, for example, received high scores in functionality for contract management tools and for the other three core modules.

SAP Ariba, GEP, POOL4TOOL, IBM Emptoris and Determine are visionaries, meaning they know the direction of the market or have a vision for changing market rules, but do not yet execute well, according to Gartner.

Lots of room for increased adoption

Though widespread in use, opportunities abound for enhancing adoption.

For example, almost 50% of companies run fewer than 100 sourcing events each year, such as seeking an RFI or RFP, and almost 60% run fewer than 10 reverse auctions per year, said the survey, whose findings are part of the Magic Quadrant report.

Only about 20% of the companies report they are fully deployed, which leaves plenty of room for growth for the vendors in the space, the report said.

Nearly 55% of companies report that they use strategic sourcing suites as stand-alone software. About 36% of companies integrate the suites with one or more ERPs and only 9% integrate with P2P applications, the report said. Of the vendors in the report, only Scanmarket and IBM do not offer P2P as well as strategic sourcing.

AI and cloud are key trends

Artificial intelligence for analyzing spending and a shift to cloud-based software are two key trends in strategic sourcing application suites.

Almost all users want cloud-based suites for several reasons, said Deborah Wilson, research vice president of procurement solutions and strategies at Gartner.

One attraction is that businesses can buy and deploy a cloud-based suite without involving IT. A cloud-based system does not include hardware and is a lot easier to tuck into a budget and avoid questions from IT, she said.

A suite is used by multiple companies, but a cloud-based system stands alone and can keep suppliers apart from an owner's other internal systems, she said. Suppliers are part of the process, and log in to provide bids and insurance certificates, for example.

There are also automatic and regular updates with a subscription, unlike on premises, which might involve a long wait for an upgrade.

Some outsource the capability, but most of the vendors have in-house natural language processing for automated analysis of transaction data to quantify spending by supplier category and item and identify areas for cost reductions.

The use of that dashboard and reporting usually takes a couple of years to get exactly right, she said.

Procure to pay is different

Wilson said strategic sourcing and P2P are two very different processes and it is difficult to justify spending for integration.

In an analysis of "vendor strengths and cautions," the report said BravoSolution, with dual headquarters in Chicago and Milan, is strong in operations such as upgrade experience and data security, customer service and public-sector sourcing. The vendor, however, lacks a strong brand outside Europe and users cite reporting and contract management tools as areas for improvement, both of which could be addressed in new releases early this year.

The strengths of Ivalua include functionality and platform capabilities, configurability and flexibility, and momentum in North America.  Ivalua, based in Paris and Redwood City, Calif., has below-average customer scores for upgrade experience and ease of use and lower-than-average scores from European users for account management.

Zycus strong in four modules

Zycus, headquartered in Princeton, N.J., was credited for high levels of overall customer satisfaction, global spend analytics and strong functionality for contract management tools and the three other core modules.

Cautions for Zycus include adoption, with Gartner estimating that at least one-third of customers having only spend analysis deployed. Customers also report a lack of onshore product specialists and also that they are having language difficulties with a support center in India.

SAP Ariba, based in Sunnyvale, Calif., has a proven ability to support global deployments, the strongest brand in procurement technology and strong sales execution for the suites, most often in combination with its P2P software. Customer satisfaction has fallen dramatically compared with Magic Quadrants in prior years, but the vendor is increasing product investment in the strategic sourcing area. The vendor also was tagged with low scores for ease of use, with contract management tools singled out for requiring a major overhaul, and needing to boost integration among modules.

IBM working on UX

IBM Emptoris' strengths are global presence and innovations such as Watson intelligent search, spend analysis and contract management tools, the report said. The company, with headquarters in Armonk, N.Y., scored below-average for user experience, which the vendor said it took up with one release in late 2015 and will address with other releases to come, the report said. IBM also garnered a low score from reference customers for contract negotiations and renewals, and low levels of satisfaction with intra-suite integration.

GEP, based in Clark, N.J.,  notched high for spend analysis and contract lifecycle management, first and best in access for touchscreen tablets and strong improvement in customer satisfaction, while warnings include below average grades for risk management functions and value gained from deploying multiple modules from the same suite, the report said.

POOL4TOOL scored high on integration within the suite and satisfaction with integration with ERP, which is important for direct materials in manufacturing, a focus of the vendor. Headquartered in Vienna, POOL4TOOL lacks brand recognition outside of its core market in German-speaking parts of Europe and several customers said it needs to improve on project management and  implementation services. The vendor responded that issues usually stem from customizations for specific customers, according to Gartner.

High satisfaction with Determine

Of all the vendors in the report, Determine, based in Carmel, Ind., received the highest score for overall customer satisfaction and high ratings for customer service and ease of use, the report said. Determine, which specializes in contract management tools, is going through some financial challenges but has released plans to be more profitable, the report said.

While BravoSolution, Ivalua and Zycus are leaders in ability to execute and completeness of vision, the designation is not an endorsement to buy the products. The magic quadrant is only a starting point and companies should consider vendors in three other categories that might better match business goals, according to Gartner.

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