META Trend: Through 2004/05, organizations will consolidate disparate sourcing and procurement groups to exploit economies of scale through demand aggregation and improve process execution through business-to-business integration. Spreading business risk across trading partners will command the need to consistently ensure supplier compliance rather than simply monitor transaction results. Supplier relationship management (SRM) strategy will emerge as an IT imperative by 2005/06, forcing the integration of sourcing, procurement, and supplier management applications into an SRM architecture by 2006/07.
In January 2004, we published a META Trend stating that many organizations will consolidate disparate sourcing and procurement systems, improve external process execution through business-to-business integration (B2Bi), and begin to formulate specific supplier relationship management (SRM) strategy and architecture (see the META Trend below). Indeed, our research indicates that this is occurring among industry leaders; however, progress for most other organizations has been slow. The reason for this lies principally in the lack of organizational structure required to unite disparate groups and processes.
Most organizations have several disparate groups (e.g., sourcing, procurement, supply management) and systems that support the execution of source-to-settle (S2S) processes (e.g., requisitioning, reverse auctions, contract management, procurement execution, document matching, settlement – see Deltas 2683 and 2684). Often, these groups are isolated (i.e., by geography or within siloed organizational structures) or simply collaborate poorly. In addition, the data captured and generated by the systems used within these groups (e.g., supplier information, product information, order management and tracking) is poorly coordinated and exchanged. Indeed, in many organizations, the integration of S2S systems does not exist at all, relying instead on the expertise of procurement and accounts payable personnel, tracking results using spreadsheets to reconcile differences.
Those organizations that are succeeding at SRM and B2Bi strategy are doing so because they first create a cross-functional collaborative organizational structure. Here, formal governance is applied to various supplier-facing teams whereby they are charged with developing formal and structured collaboration techniques for process design, execution, and performance management across all S2S processes and their respective stakeholders, both internally and externally with supply partners. They support their efforts by using process modeling, simulation, and analytic tools to understand the economic implications of “as is” and alternative S2S process designs (see Deltas 3158 and 3165).
In general, we find that many organizations do have some degree of S2S systems integration. Typical integration points include supplier master files (e.g., approved supplier lists, catalogs, contact information, price lists) with procurement execution applications, or those that link and match related procurement documents (e.g., purchase orders and invoices) to authorize settlement. Closing the loops that exist between disparate S2S systems will emerge as a business and IT priority through 2005/06. Industry leaders will seek application and integration frameworks supported by next-generation service-oriented architectures (SOAs) and Web services technologies as a means to fulfill SRM strategy. Other organizations will continue to limit efforts to a few critical integration points because of cost or complexity, or they will wait for an incumbent/preferred IT vendor to offer an adequately integrated application suite. In either case, the market for process-oriented systems (versus enterprise application integration) is fomenting. We believe the following trends will emerge in 2005.
META Trend: Supplier Relationship Management
Organizations are renewing their due-diligence efforts for strategic supply chain investments. While cost-cutting initiatives will continue to be the driving factor, through 2005/06 organizations will continue to consolidate disparate sourcing and procurement groups and systems as part of an SRM strategy to consistently ensure supplier compliance and drive business performance management objectives. By 2006/07, SRM will be broadly adopted as a critical subset of supply chain management (SCM) strategy and will be integrated with supply chain planning and execution systems by 2007/08. By 2009, many innovative firms will consider unique means to enable competitive advantage by directly linking SRM systems with sell-side systems (e.g., Web commerce, customer relationship management), product life-cycle management systems, and/or enterprise asset management systems.
META Trend: Inter-Enterprise Integration
Through 2006/07, organizations will seek to fully exploit application investments by addressing inter-enterprise business process efficiencies with trading partners. Most organizations have implemented internal process management initiatives that drove application investments (e.g., ERP, SCM, SRM, CRM), spawning the need for enterprise application integration (EAI) technologies and services. Rudimentary integration with external supply partners and customers via paper, fax, and limited EDI interchange will be replaced with a tiered series of value-added technologies and services (e.g., data cleansing/syndication, product information management, transaction management, reconciliation and analytics, financial process management, supply chain planning and collaboration) to drive business performance management results through inter-enterprise integration (IEI). IEI will emerge as a critical means for organizations to achieve competitive advantage through 2009.
META Trend: Process-Oriented Systems
Business performance management (BPM) will cause a dramatic shift in IT strategy and architecture through 2009. BPM is a business strategy, managerial discipline, and IT framework that consistently and reliably tracks key performance indicators (KPIs) tied to business processes from across a distributed organization to ensure compliance with business objectives, contractual obligations, and regulatory requirements. Through 2007, Web services-based SOAs will become prevalent – the result of upgrade cycles, software releases, and product innovation by vendors. By 2008/09, this will cause the current application-oriented integration to give way to “process-oriented systems” or integrated solutions designed to holistically support the end-to-end information, decision support, and management needs of all business process stakeholders (individuals and groups – internal/external), rather than the execution of synchronous or asynchronous tasks (feature/functions).
Epilog
We believe these trends are highly inter-dependent on one another. As SRM emerges as a subset of supply chain management strategy, organizations will demand consistent compliance and assurance that business and contractual obligations are met. This will require organizations to expose various planning management and performance measurement systems to one another, in turn creating the need to improve inter-enterprise integration techniques, technologies, and services. A byproduct of both will be specific process-oriented systems designed to enable enterprise business performance management that simultaneously supports the planning, execution, reporting, and change management functions of business processes against metrics-driven business objectives. Process-oriented systems will be designed to execute and optimize the business results derived from a process – not just to execute the process or tasks therein.
Bottom Line: In 2004, leading organizations succeeded in understanding and forming supplier relationship management strategy as a critical subset of supply chain management strategy. However, many organizations must still overcome organizational limitations. This is best accomplished through formal collaborative process design, looking at source-to-settle processes as a holistic system.
Business Impact: Effective supplier relationship management and inter-enterprise integration strategy will ensure supplier compliance with business and contractual obligations, as well as assist organizations in managing against specific supply chain key performance indicators.