Watching overeager vendors and manufacturers jump full speed into the uncharted territory of the late '90s e-market, Avner Schneur, the founder, president and CEO of enterprise supply management company Emptoris (Burlington, MA), felt that people had taken this revolutionary concept to the extreme, and the results were unimpressive. "I used to joke that people buy lightbulbs and steel over the Web," he says. "I saw the e-market model and I knew that wasn't the way companies were buying for strategic goods. It sounds good, but it's not reality. There are better opportunities than going on the Web and asking for lightbulbs." And so, in 2000, Emptoris was born.
Focusing on the long-term relationship that a company has with the goods and services it buys, which introduces many elements beyond price that require consideration, Schneur worked with Gary Li, now Emptoris' vice president of development, to find the total cost of ownership (TCO) model for strategic sourcing. "When you buy goods, it's not just about price," says Schneur. "What about the cost of shipping and warranty, and the customer service behind it? It is quite complex. How do you factor in all these elements?"
According to Schneur, buyers are relying on suppliers more and more to help them understand where they can find the most benefits. But, he asks, "Do the suppliers have more knowledge than the buyer?" This is where the Emptoris 5 product suite comes in. "We have formulated an application that allows the buyer, in an easy way, to encapsulate the complexity. Suppliers bid on it the best way they can," says Schneur.
Covering areas such as contract management, compliance and spend analysis, the products help a company decide where to spend its money. "We give them a clear understanding of the opportunities relative to the buy," says Schneur.
The optimization tool is the key. To create it, Emptoris worked with Ph.D.s from MIT (namely its Dean of the School of Engineering, Tom Magnanti, who now sits on Emptoris' board of directors). "[Magnanti] is the academic validation," says Schneur. The tool takes what buyers really care about, do they want to compromise on quality, or do they want two suppliers, for example, and creates scenarios that run against a supplier's bid, making recommendations and offering supporting information. "Today, if you have no optimization as part of your negotiation suite, then it's not considered to be a solution. It would be like selling a car without a radio," says Schneur.
The savings and results that customers have attained by utilizing Emptoris 5 have garnered greater recognition and product adoption for Emptoris. "Nobody ever did this before in sourcing ... the amount of savings is exceeding anyone's dreams," says Schneur.
Emptoris customer Motorola is a prime example. In order to decrease costs and increase productivity, Motorola needed to reduce negotiation cycle time, simplify coordination between commodity managers and suppliers, and optimize contract awards across sectors.
Working with Emptoris, the company launched a comprehensive sourcing tool in 2002, and the results have been stellar: Motorola sourced over $16 billion and saved more than $600 million, including $200 million attributed directly to the advanced collaboration, online negotiation and optimized-based analysis capabilities supplied by Emptoris, according to Emptoris.
In addition to cost savings, streamlining its supplier negotiation process earned Motorola the Edelman Award for achievement in operations research and the management sciences at the "Tech World Series" earlier this year. Companies it beat out include Philips, John Deere and Waste Management Inc.
Customer successes such as this have translated into huge momentum growth for the private company, which recorded 100%-plus growth in terms of both revenue and new sales bookings, including future deals, four years in a row. "In 2004, the revenue growth was 138% over 2003. We consider we're the hottest company in this space," says Kevin Potts, director of product marketing at Emptoris.
Such phenomena are behind Gartner Inc.'s reasoning in placing Emptoris in the "visionary" quadrant of its report used by end users to evaluate vendors, the "2004 Magic Quadrant Sourcing Applications."
Visionaries utilize their grasp of the market direction and understanding of business problems to create their products. According to Carl Lehman, vice president of research at Gartner (Stamford, CT), Emptoris "has done a good job of creating a holistic approach to supplier relationship management ... [it] has a good understanding of the end-to-end nature of source to settle.... A lot of times that process is done by different groups within the company. The goal would be to integrate it. Emptoris is doing that."
Emptoris points to its product's scientific algorithms, non-rigid workflow and focus on collaborative information exchange as reasons for its ability to lure customers away from competitors such as Oracle and SAP. "A number of customers used either Oracle or SAP and decided not to go with them. Some analysts talk about our two to three year lead over either Oracle or SAP.... We took a fundamentally different approach than other solutions," says Potts.
Lehman supports these sentiments: "It has a good story to tell compared to SAP and Oracle advance procurement. Emptoris has a more tightly integrated system. SAP and Oracle are just getting to linking [source to settle]. Their components don't talk to each other. Emptoris is ahead because its [products] do."