When a manufacturer does business with multiple suppliers in several different countries, the job of integrating supplier data with a company’s ERP system can be very tedious.
That’s where supplier relationship management (SRM) software comes into play. It’s a growing industry in which small, best-of-breed players contend for a piece of the market share from giant vendors such as SAP, PeopleSoft, Oracle and others.
The software automates processes in the business-to-business supply chain that previously have been done manually. SRM applications add functionality within a company’s ERP system to help companies work with suppliers when purchasing items such as operational supplies.
SAP unveiled the next version of its mySAP Supplier Relationship Management (SRM) software at the annual conference of the Institute of Supply Management (ISM), conference held in Philadelphia, this week. SAP says it is the market leader in the SRM market, booking more than $150 million in new software licenses for mySAP SRM in 2003.
But the challenge for SAP and other vendors is to define exactly what SRM is, said Joshua Greenbaum, principal consultant at Daly City, Calif.-based Enterprise Applications Consulting.
"SRM has become a sanitary landfill that vendors dump a lot of stuff into," Greenbaum said. "SRM is a loosely defined market because there are a lot of products called SRM and then a lot of products not called SRM that have SRM capability."
For example, a company installing a warehouse management software package that tracks inbound and outbound shipments of supplies is installing SRM software, Greenbaum said. Any time there is a supplier and a buyer of goods, the software to track the process can be called SRM software, Greenbaum said.
"The market leadership may be better described as among the packaged software providers," Greenbaum said. "It’s not a neat and concise market and I think that’s why one of the problems with it is the absence of a precise definition."
SAP is touting the benefits of its SRM software by paring it along side its NetWeaver software stack. The latest version of mySAP SRM is integrated with SAP’s NetWeaver software stack incorporating a new feature that lets a company create a master contract that can be distributed to various back-end systems, said Faheem Ahmed, product marketing manager, mySAP SRM.
The latest release, made widely available in June, includes new cost bidding, contract distribution and supply strategy development features.
The built-in cost-bidding feature gives companies the capabilities to analyze supplier bids without sophisticated bid algorithms, Ahmed said. The software tells purchasing managers how special deals or contracts would affect the bid made by favored suppliers, Ahmed said.
A new contract distribution feature helps companies distribute negotiated contract terms throughout the ERP system, Ahmed said. For example, a company that negotiates a new contract for rubber must integrate volume discounts that could reduce or increase the price of rubber each month depending on demand.
"You need to make sure that all the supply systems understand the terms of the contract to include volume discounts resulting in price changes," Ahmed said. "With multiple currencies and languages, negotiated contract prices around the world can be quite tricky when you integrate it with your ERP system."
Developers have also designed a new process for supply strategy development into mySAP SRM. The new process includes demand aggregation, portfolio analysis, category management and purchasing controlling.
The latest supplier collaboration capabilities in the software also offer a completely Web-based view to provide companies with one unified view on design objects, bids and contracts, forecasts, inventory, procurement documents and shipments.
Expert’s Views :
SAP recently released its latest version of my SAP Supplier Relationship Management (SRM), version 3.0. To find out what the new version can — and cannot do — for customers, SearchSAP.com put some questions to our resident SRM expert, Sachin Sethi. He’s an e-business solutions manager at Edison, N.J.-based Seal Consulting Inc. and has worked with the mySAP SRM/EBP product line since its initial BBP 1.0 release. In this interview, he tells users how to avoid SRM confusion and offers his top 10 suggestions for a clean SRM implementation
How is SRM different from the old SAP eProcurement product, and how does it tie in with Enterprise Buyer Professional (EBP)?
Sethi: MySAP SRM is an umbrella of solution offerings for the entire process related to Supplier Relationship Management. It covers many areas: strategic sourcing, supplier enabling, and operational procurement and content — the underlying data that supports the overall procurement and sourcing activities.
EBP is now re-labeled and marketed as SRM Enterprise Buyer, but it remains the key engine that supports the other business processes related to SRM. It seems the release numbers are out of sync at the moment (SRM 3.0, EBP 4.0, etc.) which can be confusing, but hopefully the components of the SRM product suite will be normalized by the next SRM release.
What advice do you have for ROI-conscious decision makers considering mySAP SRM?
Sethi: With mySAP SRM, you have the ability to negotiate lower product costs, reduce the overall transaction costs and dramatically compress your cycle time, but you have to do your homework. To get a feel for what kind of ROI you can expect, you have to look at the big picture. Calculate the total procurement spending. Examine your processes and your timeline, as they stand today, in both direct and indirect terms. When you have the big picture worked out, evaluate your findings and see what parts you have strategic suppliers assigned to, and which ones you do not.
It is a complex project that may take a few weeks to go through, but it is worth it. You may be able to shave off 5% to 15% of your total spending, which gives you an idea of the ROI. This could be pretty good if you already have a mySAP.com license.
How does the licensing work?
Sethi: Anyone who has a mySAP.com license already has the Enterprise Buyer Professional solution. It’s part of the package, and all you have to do is implement it. Once EBP is implemented, you can go ahead and subscribe to the SRM license, which will give you components like Supplier Self-Services, the bidding engine for RFx, auction capabilities, and so on. Companies need to be on EBP release 3.5 or above to actually license the SRM enhanced suite.
What are the main enhancements to the new version, mySAP SRM 3.0?
Sethi: The shopping experience has been redesigned to appeal to different types of users: Casual users, frequent users and professional users. This means some users work with shopping carts, others with wizards. These different interfaces are great in terms of usability. Other new improvements include supplier evaluation, global spending analysis and cross-catalog searching, which utilizes the new version of the Open Catalog Interface (OCI).
Can you explain the live auction feature?
Sethi: The basic auction and reverse-auction capability is already there, but the new thing is the real-time monitoring and tracking of different auctions taking place. It has a graphical interface powered by a set of Java-based tools that enables users to participate in a virtual auction floor. You can chat, track participants and follow the action in real time, providing much better visibility than mySAP SRM 2.0. However, the live auction feature is not going to be available until later in 2003.
Do you think SAP SRM 3.0 will be widely embraced?
Sethi: The main reason for creating this product was to enhance usability, and I think they got it right. It is much better. If I were an SAP customer, I would readily go with SAP SRM 3.0.
What improvements would you like in the next version of mySAP SRM?
Sethi: Supplier Self Services within mySAP SRM would be very helpful. There is a need for the ability to directly communicate the forecast and demand, scheduling agreements, and contracts with your suppliers. This would enhance the supplier community for each company and establish a stronger relationship across the supply chain.
Other key improvements I would like to see are the enhanced supplier adoption functionality and consolidation in the overall infrastructure required for the SRM solution. There are a number of components, and each one requires an independent environment. There must be something SAP could do to simplify this. Last but not least, it would be nice to have customer-created, on-demand workflows that don’t require a developer making enhancements.
Are there any rules of thumb for successful mySAP SRM implementations?
Sethi: When you undertake an eProcurement initiative, it is not just a software component addition. It is more an organizational shift than a technological enhancement — you must be familiar with the underlying implications.
It is also important to involve the business process owners and IS support personnel up front in the project strategy, so allocations can be determined to support the new environment. It is also good to have an experienced implementation team with multiple skill sets.