As the needs and concerns of manufacturers have evolved, so too has the technology used to support their businesses. Take, for example, manufacturing resource planning software, which has evolved into the comprehensive enterprise resource planning (ERP) business management systems, widely considered essential to any serious business in today's marketplace. Similarly, supplier management software has evolved over the years to fit the changing needs of manufacturers.
Today, "all activities involving market analysis for supply, sourcing strategies, strategic vendor management, vendor collaboration, and document exchange are becoming increasingly critical in every manufacturing business," Andy Kyte, an analyst and vice president at research firm Gartner Inc., told Managing Automation.
Further, the procurement of goods and services represents a constantly increasing percentage of the cost base of every organization, driven by factors such as globalization, innovation, and specialization, Kyte says.
Large-scale SRM application vendors include ERP purveyors such as SAP and Oracle, and best-of-breed vendors such as Ariba, Emptoris, and Procuri . Generally, Kyte says, SRM applications comprise two main components — one involving events that occur before a contract is signed, also known as e-sourcing, and the other for events that occur after the contract is signed, or transaction management.
For manufacturers, direct materials transaction management, or POP (plain old purchasing), is handled within the manufacturing control system. Indirect materials and services management, or e-procurement, however, generally occurs within an SRM suite along with e-sourcing.
E-sourcing software has evolved, Kyte says, along with the needs of manufacturers, from basic reverse auction functionality to enabling collaborative authoring of RFx documents. This includes a structured workflow with signoff and approval lading, providing more standard and better quality RFx documents. Typical e-sourcing solutions also provide functionality for publishing the RFx via a password-protected Web site that can be viewed by invited bidders. The same site can be used internally by the manufacturing organization to manage the bidder inquiry process and allow bidders to respond directly to the Web site.
High-quality RFP documents then become assets that can be accessed company-wide. Buyers are able to learn from others' RFP experiences, and the organization benefits from the value-add signoff process, in which all stakeholders in the transaction are able to add individual requirements before the document is published to suppliers.
These SRM applications also feature a "planned mode" for indirect material procurement — including shop floor equipment — that afford manufacturers a proper examination of appropriate inventory policies and helps avoid the alternative "blind panic" that maintenance engineers face when forced to scramble to replace non-functioning equipment without a predefined plan.
Market Trends
Gartner's Kyte notes a trend toward increasing interest in spend analysis in supplier relationship management. Large multinational manufacturers that have grown through merger and acquisition often comprise several separate organizations, each using different codes for the same suppliers. They may even have different part numbers for the same products they buy from those suppliers, and no consistent coding systems to give them a coordinated view of their spending. In other words, that one company is buying as if from 15 separate shops.
Procurement managers need to analyze global spend for cost saving opportunities and leverage collective buying power to reduce the number of larger contracts and minimize diversity in products. In light of these concerns, many companies are adding a chief procurement officer to their executive teams to drive cost control, efficiency, and corporate performance in purchasing.
Tim Minahan, senior vice president of marketing at best-of-breed SRM vendor Procuri, says that in the late 1980s, before the phrase "supplier relationship management" came into vogue, purchasing activities had a tactical, internal focus. What little automation existed was process-specific, with purchasing only representing a small portion of a company's spend. In contrast, today's purchasing department often serves as a company's scout, Minahan says, setting up local supply lines to sell into global markets.
Another driver of SRM adoption is the prevalence of outsourcing, which calls for continual reassessment of how to negotiate the best possible deals. Compliance and risk-management efforts also have become critical as supply chains have stretched into a lean, just-in-time operational model in which reduced inventory introduces increased risk.
In addition, compliance with globally varying regulatory requirements including Hazmat and RoHS often force manufacturers to find alternative sources in short order. Because such regulations change so rapidly, Minahan says, a buyer might find that a supplier is not a good fit after only a year. Thus, Minahan explains, supplier management largely has become a strategic discipline.
Jim Lawton, vice president and general manager of SRM technology at service provider Open Ratings Inc., notes that many large manufacturers have enough resources in their procurement departments to cover supplier issues, but often aren't aware of where problems exist until after the fact. He suggests that analytical SRM software can show which areas to pay extra attention to, and can provide insight into the increasingly complex interworkings and operations of all suppliers in supplier base — at the tier 1 and 2 level and beyond — well before problems arise.
"The reality is that suppliers play a much more critical role in the success of a manufacturing company" today, Lawton says. This fact, coupled with a steady decrease in the amount of direct control manufacturers have over their supply chains, calls for a comprehensive, holistic view of the entire procurement operation.
On the applications front, ERP giant Oracle recently released version 9.0 of its PeopleSoft Enterprise SRM software, enhanced with supplier contract and deliverables management capabilities requested by customers.
John Webb, Oracle's vice president of strategy, says that users need better tracking of transaction information back to the original contract — a process called contract compliance — to ensure that suppliers are meeting their commitments after a deal is signed.
"The latest release [of PeopleSoft SRM] includes more metrics and analytics around the contracts area — creating end-to-end visibility into performance both on the supplier side as well as the internal performance of the buying organization," to ensure that the company is fully leveraging its contractual agreements, Webb says.
Another main area of focus for Oracle's SRM customers, he says, is supplier performance and risk assessment. This includes creating visibility into the risk of stockouts based on past supplier performance, and determining well in advance of a contract whether a supplier is financially viable.
Below, a look at the 10 listings in MA's SRM software directory most often viewed through our new Product Comparison Tool between November 1, 2006 and January 31, 2007.
1. IFS Applications, the vendor's suite of more than 60 Web-based components (80% of MA's SRM functions fully supported)
2. Vantage, an "out of the box" offering from Epicor Software Corp. targeting make-to-order and mixed-mode manufacturers (53% of MA's SRM functions fully supported)
3. Oracle Applications, the vendor's integrated ERP package comprising sales, service, supply chain, and other modules (90% of MA's SRM functions fully supported)
4. Infor's ERP SyteLine, built and deployed on Microsoft's .NET platform, presents data in a Microsoft-like interface with the data management abilities of standard Microsoft productivity applications (53% of MA's SRM functions fully supported)
5. Vista, Epicor's ERP package for small and mid-size businesses (45% of MA's SRM functions fully supported)
6. Intuitive Manufacturing Systems (a Made2Manage Systems business unit) Intuitive ERP for small and mid-size companies, which integrates enterprise resource planning and customer relationship management functionality (44% of MA's SRM functions fully supported)
7. Plexus Online, the vendor's on-demand "manufacturing performance system" including quality management; materials and inventory purchasing; and receiving/tracking modules (35% of MA's SRM functions fully supported)
8. SAS Institute's SAS Systems, which enables strategic sourcing through an integrated set of data management and analytic applications designed specifically for the procurement professional (19% of MA's SRM functions fully supported)
9. Exact Software's Macola ES (Enterprise Suite), with native business process management tools including exceptions monitoring (33% of MA's SRM functions supported)
10. Seeburger's B2B Gateway, which automates trading relationships throughout the supply chain, capable of integrating all of an organization's applications and trading partners (8% of MA's SRM functions supported)