The Last Word: E-sourcing is here to stay

The past couple of years have not been particularly kind to the supply chain application sector – and the sourcing market has surely felt the repercussions.

However, enterprises remain obsessive about cost saving and with eSourcing promising to deliver rapid and sizeable return on investment (ROI), spending on such sourcing solutions is on the upswing. Most importantly, enterprises seem ready to make eSourcing more of a long-term business strategy than an activity restricted to the short run.

The market that is expected to emerge over the next year or so will bear little resemblance to the early eSourcing environment. There are already trends emerging that might shape the future of this market.

Enterprise requirements and constraints are now driving sourcing vendors to deliver a "whole" e-sourcing solution – one that combines self-service applications with category expertise, methodologies, and sourcing-event management services that can be accessed when needed.

This combination of functionality and services will allow enterprises to direct larger volumes through e-sourcing and also continuously improve upon category-wise expertise and sourcing processes.

Another interesting facet is that of hosted offerings that are gaining in acceptance. These are surely here to stay — contrary to early belief that long-term viability would require e-sourcing vendors to deliver licensed applications that could be deployed behind a company's firewall. Hosted deployments account for a large part of all e-sourcing installations.

Even the largest of enterprises are making long-term commitments to such solutions.

Thanks to the economy and pressures from ERP vendors, the price for basic functionality, say a sourcing event, has fallen drastically. The fee for similar functions is down to almost half of what it was a year ago.

Evidence

However, there is mounting evidence that enterprises are willing to spend more on advanced functionalities such as project management and advanced analytics – they seem willing to spend more as long as they see commiserate value being delivered by the vendor.

In the past few months, the e-sourcing industry has already witnessed major consolidation with many vendors either being acquired or shuttering — the shake-out is nowhere near over.

Skittish venture capitalists and a prolonged IT spending drought will make it increasingly difficult for most of the smaller vendors to remain viable or even survive. Analysts foresee a third of the current number of players in the market to be either acquired or closed down. Driving towards a holistic, total cost management approach for managing supply, enterprises are now looking to align sourcing activities and systems with other business processes, especially on the planning and design front. eSourcing vendors will, therefore, need to develop a sound integration strategy and collaboration with planning and design solution vendors.

As enterprises look offshore to obtain supplies at lower cost, contract manufacturing and business process outsourcing (BPO) capabilities, and also to develop supply bases closer to emerging markets — global sourcing support might well be the key differentiator.

Major retailers and high-tech and automotive manufacturers are pushing their e-sourcing solution providers to deliver new global sourcing functionalities.

Today, global sourcing requirements stretch beyond multi-language and multi-currency support — additional functions would involve collaboration and demand aggregation across geographies, enhanced supply market intelligence, global trade regulations support, total landed cost intelligence, and analyses, among others.

Though e-sourcing will remain a hot button in the foreseeable future, it is clear that enterprises will favour only those solutions that support a hybrid model and offer advanced collaboration, analytics and globalisation support. It is up to the vendor community to deliver these promises.

– The writer is head of global sales at Wipro Ltd -O1markets