Business & Technology Nexus

The Environmental Protection Agency has something called "CPG", and it doesn't stand for consumer packaged goods. Instead, it stands for "Comprehensive Procurement Guideline", one that applies to Federal procurement & all state and local procurement done utilizing federally-issued funds. And although it is called a "guideline", it must be followed for products the EPA designates.

Here's a brief history of the program straight from the EPA website:

"In 1995, EPA issued the first CPG which covered EPA's original 5 procurement guidelines and added 19 products. The first CPG update (CPG II), published in November of 1997, designated an additional 12 items. A second CPG update (CPG III), published in January 2000, designated an additional 18 items. A third CPG update (CPG IV), published in April 2004, designated an additional seven items and revised three existing item designations."

One interesting facet of the program is the online supplier database the EPA has assembled. A blind query reveals 1352 suppliers, far lower than I thought would readily conform to government regs to get a chance for juicy government contracts. And the 1352 is really a huge exaggeration as the database repeats suppliers for some product/subproduct combinations. I'd guess the true number is closer to 500.

There are 59 product designations (e.g. traffic cones), and 31 "materials" (e.g. slag).

Online databases like these are handy. I wish there were more absolutely free sources of cleansed supplier data. What is your favorite source? (Please share as a comment!)

Harris Infosource (D&B)

Medicare.gov

ThomasNet

Congratulations to SAP on the Frictionless deal!

SAP didn't break out revenues by product line this past quarter. But the 4Q prior SAP SRM was up a very nice 19% to 175MM Euros or 225MM USD. Amazingly, this was without a credible Sourcing or Contract Management offering.

Now that's changed – with the Frictionless acquisition you can bet SAP's army of direct sales reps will be gunning for upsell revenue on their SRM and Financials install base.

Jason, even while ill, provides thoughtful analysis of the deal and its impact here.

Time will tell how much mo' this acquisition adds to SAP's already growing SRM business. From a development perspective, it will be interesting to learn whether SAP plans a re-write (over time & quietly of course) -or- plans to keep Frictionless a loosely-coupled, NetWeaver certified integration for the forseeable future.

Online advertising is expected to post 24.4% growth in 2006, while traditional advertising will be up a scant 4.2%. (How deep is the online-ad well?)

So chances are, your enterprise's online ad spending is up – and up big.

Traditional advertising has long been considered more art than science. And artistry has rarely been the purview of Procurement. For example, those of us old enough to remember Apple's 1984 Superbowl Mac ad, a George Orwell homage, appreciated its quality. But there was no real way to track the ads effectiveness in stimulating Mac sales.

Online advertising, it turns out, is a whole lot more quantative. And as a result, Procurement managers are getting more involved in helping maximize value while minimizing cost. (The Procurement Officer: Your New Best Friend)

One way to increase value while controlling your expenses appears to be the purchase of lower volume keywords. They can indicate a buyer further along in his or her decision making and more apt to make an immediate purchase.

Still, setting budgets for Marketing will remain an exercise in intuition and "gut" awhile longer. For marketing professionals, here are some ideas for getting the budget you want: Managing a Search Advertising Budget

How do you know when your Indirect Procurement implementation & processes have drifted off course? Here are some singals that should be worrying:

• The volume and or dollar volume of ordering has hit a plateau or is marginally declining & is not close to your overall spend
• Business groups are being "cut" from your central system and being moved to dedicated systems (i.e. Marketing, Consulting, Research)
• Employees you talk with are generally unhappy with the system and openly discuss among themselves way to end-around it

So what is the cure? First, don't be quick to blame it on lack of executive support or your lax corporate culture. Even if more executive support would have helped, it won't help you right now. Instead, start with the employees and document their concerns with the Procurement tools you've deployed.

If buying patterns have changed dramatically, discover the trigger. Has your business changed?

If you've simply hit a plateau well below your goal, drill down into the data. Are there additional areas of buying you now need to bring online? Are they somehow intrinsically more difficult to manage? (e.g. variable rate services)

Above all, be realistic of what you expect from the users of your Procurement system. Make sure you understand the process and system deficiencies from their point of view. They won't tolerate a slow, lumbering experience that makes them jump through hoops to do simple tasks like buying. They have bigger things to worry about.

You should also be monitoring utilization by organization and business function. Is usage and compliance high in corporate but low in regional offices? If so, there may be valid barriers to adoption you are not yet aware of.

Usage of procurement systems drives ROI & makes the difference between a so-so project and a success. Consider assigning someone from your team (or yourself) as a "customer relations" person. Have your IT or business analyst liason customize your system and streamline your processes.

And remember, people and culture change is slow work. Don't expect to sprint to success.

Just in case you hadn't noticed, there's a phrase-war raging between two heavyweights in the world of procurement – Jason Busch and Tim Minahan. I'm in the cheap seats on this one, popcorn in hand and hoping for some fireworks!

To recap, Jason is outraged that Tim believes "spend management" is just a marketing slogan with no discernable, well-accepted definition. Worse yet, Tim has brazenly accused the Ariba-invented term as having a dangerously narrow scope. He says it discounts value and innovation focusing instead on cost alone.

Jason has refused to stoop to Tim's "attackery" and respond by trashing the "supply management" term for being foolish too due to its goods-centric, manufacturing-esque qualities. Instead, he's promoted the spend management moniker further by citing its ability to garner at least a 10-second attention span from CFO's weary of all things procurement.

Now, thanks to Doug Hudgeon, I've learned of a handy tool for gathering some basic intelligence on "popularity" of terms – Google Trends. So, here's the data:

Now, you may have trouble seeing the line showing the number of Google searches for spend management (I know I sure did). Supply management is something that fared far better, but it still lags more mainstream terms such as Purchasing and Procurement. And Tim would probably argue that's fine because its implied scope is different. And perhaps I would concede that point.

But you have to admire the passion both these guys have for procurement as a vitally important discipline in the enterprise. Oops, I mean supply management. Or was it spend management? And whatever happened to SRM?

Sure, we’ve all seen the current spike in gold prices. And at $720 an ounce, I’m starting to look at my dental crowns a little differently. I mean, are they really necessary? Here’s the tale of the tape:

But check out the story beyond gold – copper, aluminum, zinc, and nickel all show strong upward movement.

Metals prices are being cited as the reason behind run-up in the Australian dollar vs. the US dollar. And articles aboud (like this one) on speculator excesses. The market seems to be getting “frothy”, but calling a peak is beyond a humble layperson such as myself.

So be careful, metal this hot might just burn if you hold it for too long.

If you haven't already, please treat yourself to a whirlwind of information from Tim at supplyexcellence.com. It's great to see Tim hasn't lost any speed in moving to Procuri from Aberdeen. Very good stuff.

What’s the right balance between protecting prospective government suppliers from unfair awards and keeping government practices lean?

On the one hand it’s important that rules and regulations penalize unfair practices to prevent cronyism and bribery from tainting awards of government contracts. But on the other hand, these very same protections tend to cause a mountain of red tape, inefficiency, and a “cover-your-ass at all costs” attitude in government contract offices – often at the expense of doing the right thing.

So there’s no clear answer. Here in the US, despite the FAR and DFAR and all our other regulations, stuff like this happens. And in the EU, the regulations are beginning to grow. I guess you have to protect vendors rights and offer them some recourse as a check on a potentially corrupt system. But time will tell if “bidder’s rights” leads to better outcomes or slower and less efficient procurement practices.

I liked Jason's coverage of Ariba's on-demand announcement. By all means, read it. And I can't resist commenting on my curiousity on the press release itself – this is a major product announcement from Ariba and yet no one from Marketing is mentioned within it, and there's no quote from Ariba's CEO. Strange and pretty uncharacteristic for Ariba.

Back to Jason's post, one of the stipulations he makes, which I've also heard straight from Ariba themselves, is that eProcurement "belongs" to the ERP players now, at least in the Fortune 500 or Global 2000. It's an interesting view – and I can understand how Ariba could become convinced of that due to the relentless attacks (successful or not) they've experienced from SAP and Oracle. It's no fun to have your install base under assault from these guys' huge direct sales forces – it costs too much money to hold your ground, let alone make forward progress.

But it's not at all clear that the assertion explains Ariba's recent fortunes, or for that matter is backed up by the experience of other vendors in the market. Counterpoint 1 is Sciquest's success in the higher education/researcher market. I haven't talked to a customer who dislikes them, and some have even thrown out ERP eProcurement solutions to go wall-to-wall with Sciquest. Sciquest publicly claimed bookings have increased 100%, which to me seems pretty darn good. Counterpoint 2 is Procuri, who has stated revenues are up 71%. Both Oracle and SAP cover the ground these firms cover (not as well, not as fully), so why are they doing better-than-fine and growing far faster than Oracle & SAP?

Is SaaS the reason for the difference & therefore the answer for Ariba? I don't think so. Firstly, Ariba has had an SaaS sourcing offering for awhile and has still stagnated as others grew nicely. Secondly, SaaS doesn't change the fact that SAP and Oracle are inexorably expanding their Procurement footprint.

And remember, Oracle has been offering single-tenant SaaS ERP for years now & can expand that. And SAP is making inroads in SaaS too. Neither really embrace multi-tenancy (the ability for customers to all share the same database & operating environment). But that's by choice. Some internal SAP studies I've been priviledged to hear about reveal only a 5% internal operational cost advantage for multi-tenancy. Not nearly enough to justify the risk associated with having a single point of failure for your entire hosted customer base.

Now what's great about SaaS for point solutions like Ariba is the immediacy of use, the ability to end-around a reluctant IT department, and the rock-bottom TCO.

And so at the end of the day I think what we are seeing with the divergence of Ariba's performance from others is something far simpler than "ERP owns eProcurement now". Instead, I think what we are witnessing are enterprises making rational and informed decisions to lower the total cost of ownership of their systems. It's a financial thing, and in my view always will be. SaaS will only work for Ariba if they can build better software and offer it for a modest subscription price with rock-bottom TCO.

My claim is based on the belief that the enterprise software market is fundamentally a "technology" market. It's very difficult to win in a technology market as the high-priced leader – and that's exactly what Ariba has been for years. Much better I think to offer products at the lowest price possible & also have them be the best. Perhaps Apple is the best example of a technology company bucking my claim, but in my view they are truly one of kind.

Check out David's coverage. It's good stuff. And I have to admit my jealousy grows – Jason in Vegas and David in Minnesota. And here I am stuck at the beach. Oh well. 

And here's David's summary writeup on Jason's spendmatters.