In the red-hot e-commerce market of supplier relationship management, Perfect Commerce Inc. is seeking a competitive advantage by putting emphasis on the sell-side functionality of its software, something most vendors don’t do. The Palo Alto, Calif.-based developer of last week introduced its Perfect Sourcing 3 suite, which the company claims emulates the real-life give and take that occurs when annual contracts are negotiated between buyers and suppliers.
Perfect’s move is the latest in a burgeoning industry, which will grow from $270 million in software sales in 2000 to sales of $3.5 billion by 2004 according to AMR Research Inc., Boston. By definition, SRM encompasses applications and Internet services aimed at corporate purchasing departments. These platforms promise the ability to find, negotiate and sign new suppliers faster than before. Analysis applications that run after the relationships are in place will spot suppliers in financial trouble, cheaters or the chronically late.
Competing against such companies as i2 Technologies Inc., Dun & Bradstreet Corp.’s SourcingNet and B2eMarkets Inc., Perfect hopes to differentiate itself by serving the supply side of the equation.
Perfect Sourcing 3, which has a base cost of $250,000 and averages $500,000 per installation, has as much software code put into the supplier interface as it does the buyer interface. That means that sellers can have confidence that they won’t lose their margins when dealing with a company that finds its products on the Internet, said Kevin Surace, president-CEO of Perfect.
"If you prevent suppliers from getting an acceptable profit margin or [from receiving] the same decision support they’ve become accustomed to, they are going to run away from the system, refuse to use it and send in a field-sales guy," Surace said. "We don’t think SRM vendors in general are addressing the supplier needs."
Perfect will also try to use customer momentum as a selling point, and will shortly announce that Unocal Corp., El Segundo, Calif., has purchased its system.
Negotiating with ease
Ease of negotiation will be key for the next generation of SRM applications, said Tim Minahan, managing director of supply chain research at the Aberdeen Group Inc., Boston.
Early attempts at SRM centered on automating the process of negotiating pricing rules, including price breaks for volume buys. In fact, the value of an SRM system grows when buyers and suppliers can override the automation to create specialized contracts, he said.
"Manual intervention allows buyers to negotiate more effectively but also allows sellers to negotiate more effectively," Minahan said. "Buyers and sellers want the ability to make changes to a contract as they get to know each other better."
Perfect is not the only company pushing to establish itself in SRM. B2eMarkets has deployed a system for 3M Co. to provide sourcing to the manufacturer. The initiative is a key part of 3M’s strategy of using e-commerce applications to drive $500 million in costs out of its organization.
Efforts by Perfect, B2eMarkets and others to establish themselves in the SRM space had better be fast and furious, Minahan said. That’s because Ariba Inc. has promised the market a late 2001 release of an application that combines the capabilities of a pair of companies it has acquired—automated negotiation supplier Trading Dynamics Inc. and sourcing site SupplierMarket.com.
"Ariba is going to have one product, which requires only one sale where they once had two products that required two sales," Minahan said. "On top of that, the two products were jury-rigged. This fall, it appears they’ll make good on the promise of integration."