VideoBut that doesn't mean the marketplace stabilized in 2002. Some vendors vanished; others merged or ended the year poised for acquisition by bigger rivals. Several staffing firms that had begun to develop their own procurement software pulled back, opting instead to partner with the same software companies they'd initially considered competitors. For instance, more than a dozen staffing agencies inked deals with CascadeWorks Inc. last year; they now use the San Francisco-based vendor's technology to deliver their services.
Meanwhile, market leaders began beefing up their platforms' features. CascadeWorks's Clarity 4 (which also powers Ariba Workforce) can now handle contracts involving complex combinations of time-, project-, and fee-based services, and customers can now choose either a hosted Web-based model or a licensed software product. PeopleSoft Services Procurement translates information into eight languages, processes transactions in a variety of currencies, and can be localized for use worldwide.
The price tag for services E-procurement currently makes it prohibitive for most companies outside the Global 2,000. Start-up costs range from $250,000 to upward of $2 million, depending on company size, number and complexity of transactions, features selected, and whether the system is Web-based or licensed and run internally at customer sites. But for companies that routinely spend tens or hundreds of millions of dollars annually on contract help, even a 2 or 3 percent reduction adds up to a quick, sweet ROI.
A Call for Unity
Sprint Corp., in Westwood, Kansas, hopes for just that kind of payback when it rolls out PeopleSoft's Services Procurement in August. Ted McBride, the telecom giant's manager of E-commerce solutions, won't say what the company paid for the product, which it will initially use for hiring IT contractors and later expand to include engineering and administration. Like KeyBank, though, Sprint expects to recoup its costs within a year.
Beyond the savings in labor, McBride cites an equally critical goal for Sprint's investment: tying together a hodgepodge of systems and processes, part of a companywide campaign to create "one Sprint" from several historically distinct divisions. Currently, he says, some managers hire contractors through one of three systems, "none of which talk to each other." Others use E-mail, faxes, or telephone calls, keeping records on Excel spreadsheets. Sprint already uses PeopleSoft products for finance, inventory, purchasing, accounts payable, and purchasing goods; that, McBride says, should make it easier to integrate services E-procurement into both the company's existing systems and its culture. KeyBank opted for technology from Ariba for much the same reason: "There was already heightened awareness around the company that Ariba is the way you acquire things," says KeyBank's Manos. "It was easy to add services onto that." How easy? Training for Ariba Workforce's 11,000 users took less than one hour.
Both Sprint's and KeyBank's choices reflect a prevailing attitude on the part of many customers: opting for technology from familiar and established suppliers because of fears that smaller software companies won't survive a shakeout. Some vendors have gained traction through partnerships that helped them be part of deals they might not have been able to win on their own. CascadeWorks licensed its technology to Ariba, benefiting from the bigger company's existing relationship with KeyBank. IQNavigator teamed with human- resources outsourcing giant Exult Inc. to land International Paper's services-procurement business. Warns Andrew Bartels, vice president and research leader at Giga Information Group Inc. in Cambridge, Massachusetts: "We have a lot of vendors who have pioneered this thing — and not all of them are going to make it."
Choosing a well-established vendor doesn't guarantee a trouble-free transition. KeyBank's project hit a serious roadblock because of one seemingly simple request: the bank wanted users to be able to access both Ariba Buyer and Ariba Workforce with a single log-on. Creating that capability has turned out to be technically impossible at the moment. And many large companies may have an established brand name, but nonetheless have posted losses and even precipitous declines in revenue during the past year. A study by consulting firm A.T. Kearney Inc. found that procurement systems (of all sorts, not only those focused on services) often fared well in pilots but failed to pay off when broadly implemented, because of integration issues and the difficulty in getting employees to deviate from current practices.
Some surveys suggest, however, that E-procurement is a green-field opportunity. Currently, companies use it for just 2 percent of their total purchases, according to a Stanford University survey of 168 corporate buyers. But those same buyers said they expected to buy 11 percent of their purchases electronically by the end of 2004.
Meanwhile, early adopters keep finding ways to turn efficiency into savings. Kim Chapman, who oversees contingent-workforce management at Shell Oil Products USA in Houston, says that by using technology from IQNavigator, his company has streamlined its processes significantly. "It cuts a lot of people out of the process," he says. "I get an E-mail with [a temporary worker's] time, I can approve or reject it, and I can pay the supplier directly." So once the system was launched last December, Chapman began renegotiating contracts, arguing that in return for those prompt payments, suppliers should cut their rates or offer early-payment discounts. Many did. And those that didn't? "We've changed the portfolio of who we do business with," he says.
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