The Forrester Report

JANUARY 2000

Hands-Free Procurement

High-touch approaches to “electronic” procurement will

By Laurie M. Orlov
fall short of full potential. To reach the next level of savings,
With Ted Schadler
firms -- and their suppliers -- must make every stage of
Eroica Howard
procurement hands-free.
Liz Leyne

2 M A R K E T O V E RV I E W
• eProcurement hype promises lower spending and costs.
• Shifting legacy processes to the Net won’t cut it.
Headquarters
4 A N A LY S I S
Forrester Research, Inc.
• Firms must adopt hands-free processes to get full benefit.
400 Technology Square • Hands-free procurement is managed by exception.
Cambridge, MA 02139 USA • Once conquered, hands-free MRO procurement can be
extended to direct materials and dynamic pricing.
617 / 497-7090

fax 617 / 613-5000 14 ACTION

• Vendors should help firms focus on external integration.
European Research Center • Suppliers must upgrade external software to ease links.

Forrester Research B.V. 15 W H AT I T M E A N S

Emmaplein 5 • Electronic payment to suppliers will end check writing.
• Supplier clearinghouses will deploy nonstop technology.
1075 AW Amsterdam

Netherlands

+31 (0)20 305 43 00

17 R E L AT E D M AT E R I A L

fax +31 (0)20 305 43 33

18 GRAPEVINE
www.forrester.com Closing the books -- over before it starts.
Back to the 1980s with exception-based processing.
How does hands-free procurement resemble an HMO?
Gotta integrate the app with my inventory “system,” Joe.

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 Hands-Free Procurement
MARKET OVERVIEW

2
M A R K E T OV E RV I E W

Today’s eProcurement Has Many Touchpoints

eProcurement hype sets expectations for significant reductions in
off-contract spending and transaction costs by automating regular
purchases. Yet in implementing eProcurement, companies have stapled
their procurement processes to people. These high-touch activities will
fail to deliver promised savings.

ePROCUREMENT HYPE PROMISES MASSIVE SAVINGS

The press and Wall Street are touting eProcurement -- Net-based employee
requisitioning of maintenance, repair, and operational (MRO) goods and services --
as the next killer app of the Internet. The procurement press releases du jour trumpeting
overpriced acquisitions or intergalactic buying cooperatives hinge on assumptions that:

• Procurement apps can cut spending by 20%. The rationale for the total
reduction in the cost of goods and services hinges on three tightly linked
assumptions: 1) Procurement apps help firms whittle down the number of
suppliers, draw up more favorable contracts, and easily bring new suppliers online;
2) all employees will use eProcurement and rogue buying will be eliminated; and
3) when all buyers and suppliers are in the system, firms’ total spending on goods
and services will fall to a natural low.

• Costs per transaction can be reduced by at least two-thirds. This belief is

driven off vendor-sponsored time-and-motion studies that count up the cost of the
labor that touches the paper-based procurement process. For this reduction to
occur, firms must eliminate or redirect staff to more “strategic” tasks -- like
monitoring supplier performance and sourcing hard-to-find items (see the January
2000 Forrester Report “Reining In Online Suppliers”).

Our Research Reveals That A Procurement App Is Not A Panacea

To find out how procurement technology is achieving these benefits, we spoke with
senior executives from 15 user and 26 vendor firms about their eProcurement projects.
We expected to hear about best practices and fabulous results. Instead, we learned --
mostly anecdotally -- that implementation reality falls short of the marketing hype. We
heard about few full deployments and many manual touchpoints. We learned from users

JANUARY 2000 © 2000 Forrester Research, Inc. Reproduction Prohibited

 Hands-Free Procurement
MARKET OVERVIEW

that most firms don’t know their baseline cost per transaction and are unsure whether 3
the app they are running has reduced spending. Users described four problems with
their eProcurement implementations:

1) Most procurement requests still require explicit approval. The executives

we interviewed at Global 2,500 companies described their requisition processes
as involving numerous approvals and complex rules.

“Approval is based primarily on dollar amount, but employee level and product
category are important factors that influence routing paths.” (Food company)

“We are using the same approval levels now as we did before we had Ariba. The
approvals are based on job descriptions. If a manager needs something that is
within the dollar amount allowed, he still needs two signatures. If it’s above that,
then it needs to go up to the next level or higher.” (Electronics company)

2) Clumsy processes link firms to suppliers. Most of the executives we spoke

with use either EDI transmissions, fax, or email.

“Mostly we send orders by fax. We don’t plan on changing this in the next year
because it’s just not worth it.” (Financial services company)

“We have EDI, autofax, and email. Going forward, we are going to put the
orders up on a secure Web site, because although faxes and emails are great,
you’re never sure if they’re received.” (Insurance company)

3) Payment depends on a review of each transaction. Most firms we spoke

with pay upon receipt of the item or invoice using a three-way match between
requisition, invoice, and receipt. Only a few described processes in which trusted
suppliers were paid after shipment confirmation.

“We trigger payment by a match of the invoice to the purchase.”

(Financial services company)

“One of our methods is to pay automatically based on an advance shipping notice.

If the receiver doesn’t get what they ordered, they holler.” (Chemical company)

4) Review of buying and supplying behavior is haphazard. Companies’ methods

for auditing employee purchase activity and supplier performance are largely ad
hoc, ranging from none to periodic audit.

“We are just starting to look at our employees’ buying behavior. We haven’t really
done any analysis yet, though.” (Insurance company)

“We don’t review employee buying behavior. We do want our buyers to verify
if the supplier is being timely and responsive, however.” (Electronics company)

© 2000 Forrester Research, Inc. Reproduction Prohibited JANUARY 2000

 Hands-Free Procurement
ANALYSIS

4
A N A LY S I S

Firms Must Make Transactions Hands-Free

When companies bring their offline procurement processes online,
they will hate the results. Instead, firms need to create Internet-native
procurement processes and shift from managing transactions to managing
exceptions. This hands-free approach to procurement will make
employees self-sufficient and self-governing, promote win-win
partnerships with suppliers, and ultimately drop the total cost of purchases.

NAIVE ePROCUREMENT IMPLEMENTATIONS FALL SHORT

Cloaking today’s manual procurement processes in eProcurement finery will frustrate
companies because of (see Figure 1):

• Human intervention at each step of the process. Firms are waylaying

requisitions with approval processes that mimic their paper-based ancestors,
sending requests for office supplies to supervisors for approval or routing capital
equipment purchases to the IT department to check if requests fit standards.
These hurry-up-and-wait actions slow down the process and derail cost savings.

• Cumbersome links to suppliers. Methods for moving orders to suppliers are

far less automated than one might expect with a “killer” app. Despite a lot of press
coverage of XML, we heard nothing from users about it. Instead, suppliers receive
transmissions from EDI links -- which may take weeks to set up -- or get orders
via email or fax that must be reentered into their own order processing systems.
These connection processes will be difficult to scale up to full volume.

• Limited visibility into buyer and supplier activity. One of the touted benefits of
eProcurement is the wealth of information about supplier performance and buyer
preferences that enables the purchasing department to efficiently select suppliers
and negotiate favorable contracts. We heard no examples of new procurement data
being exploited to measure supplier performance or identify buyer behavior, nor
did we hear of anyone using it to tune workflow and speed processes.

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 Hands-Free Procurement
ANALYSIS

Figure 1 Today’s eProcurement Implementations Have Many Manual Steps 5

3) eProcurement
4) eProcurement app sends
app creates
purchase order to supplier
purchase order
via fax, email, or EDI

2) eProcurement app 5) Supplier ships

routes requisition to product and invoice
several approvers
St
art
he
re 6) Buyer matches
invoice to receipt
1) Employee selects and purchase order
product and
creates requisition

7) Buyer pays
10) Buyer renegotiates matched invoice
contracts periodically by check

9) Buyer sporadically analyzes 8) Buyer investigates

supplier performance unmatched invoices

Source: Forrester Research, Inc.

REAL SAVINGS COMES FROM HANDS-FREE PROCUREMENT

The problem with today’s approach to eProcurement is that it doesn’t eliminate manual
inefficiencies. A new application doesn’t guarantee new behavior -- or new savings.
To take advantage of the always-on, low-cost connections of the Internet, Forrester
believes that firms must deploy “hands-free” processes that are based on three principles:
1) designed for the Internet; 2) managed by exception; and 3) continuously analyzed and
optimized (see the January 24, 2000 Forrester Brief “Hands-Free: A New Trajectory
For Business Apps”). To apply these hands-free principles to procurement, firms must
(see Figure 2):

• Let all transactions flow. Instead of electronic versions of paper-based processes

that stop transactions for review, firms must identify and automate their approval
criteria. With these business rules in place, applications will pass electronic
transactions along without interruption, relying on software alerts when an
unexpected or inappropriate event has occurred.

© 2000 Forrester Research, Inc. Reproduction Prohibited JANUARY 2000

 Hands-Free Procurement
ANALYSIS

6 Figure 2 Hands-Free Procurement Is Managed By Exception

An exception is defined here as an event that stops an automated process

Sea
m
Dollar amount le
s

ss
exceeds limit

up
ing

pl
Transmission

ier
ion
fails
ntinuou

li n
it

ks
uis

Co

s
req
Rules-based

An
aly si

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Smart payment proc

Supplier delivers late

Source: Forrester Research, Inc.

• Eliminate one-at-a-time links to suppliers. Setting up connections to one

supplier at a time -- through fax, email, or EDI -- will not scale up the number
of suppliers needed to stem rogue buying. As Internet-based procurement grows,
suppliers must tap new intermediaries called supplier clearinghouses that help
them come online once to be available to many buyers.

• Optimize with continuous analysis of anomalies and trends. Rules-based

workflow engines are tailor-made for examining each transaction and performing
an action. Procurement applications will detect out-of-bounds conditions and
accumulate searching, sourcing, and purchase information into buckets of trend
data -- so that firms can build supplier scorecards and identify buyer preferences.

HOW TO IMPLEMENT HANDS-FREE PROCUREMENT

Hands-free procurement differs from today’s eProcurement implementations by shifting
the emphasis from inspection of individual transactions to the management of exceptions
based on automated rules (see Figure 3). To gain control of the procurement process,

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 Hands-Free Procurement
ANALYSIS

Figure 3 The Hands-Free Procurement Difference 7

Procurement Today: Hands-Free Procurement:

Managed per transaction Managed by exception

Online product Personalized views; named

selection Search large catalogs
shopping carts

Requisition One to 12 levels of Transactions automatically

approval manual approval approved based on rules

P.O. transmission Fax, email, EDI direct to Order is sent through a

supplier; supplier retypes supplier clearinghouse
the order
Dependent on three-way
Payment Immediate; based on
match of P.O. with invoice
authorization shipment notice
and receipt

Sporadic; not linked to Continuous; integrated in

Analysis
supplier performance real time; drives optimization
of processes

Source: Forrester Research, Inc.

lure suppliers online, and eliminate manual bottlenecks, firms must pursue three
imperatives:

1) Make requisitioning rules-based.

2) Buffer buyers from the “e” ineptitude of suppliers.

3) Replace manual authorization with smart payment processes.

Imperative No. 1: Make Requisitioning Rules-Based

With traditional purchasing, employees scan paper catalogs and circulate multipart
requisitions to get required approvals, and purchasing staff use supplier Web sites that
carry none of the buyer’s internal policies or record keeping. Rules-based requisitioning
processes -- running either on-site or hosted -- are far more effective because:

• One-click catalogs are customized to companies and employees. Vendors --

both software and catalog publishers -- should ensure that employees’ attention
is focused on contracted items by supporting customized departmental catalogs
and reusable “shopping carts” of frequently purchased items. This keeps
employees from ordering Mont Blanc pens at firms that have standardized on
Paper Mates and makes it easy for employees to easily reorder.

© 2000 Forrester Research, Inc. Reproduction Prohibited JANUARY 2000

 Hands-Free Procurement
ANALYSIS

8 • Requisitions -- based on standard contracts -- flow without approvals. Firms

should use workflow engines from vendors like Ariba and Intelisys to speed
standard requests by automating approval criteria and alerting execs when requests
are off-base. When Texas Instruments found that all of its requests were being
approved, they set up their new app to pass all requisitions less than $5,000 and
trigger a heads-up email to the employee’s manager when amounts exceed $500.

• Continuous analysis drives process tuning. To take advantage of the transaction

data being collected, firms must configure workflow so that key performance
indicators (KPIs) -- like approaching budget limits or cumulative IT equipment
spending -- are calculated in real time and fired off as alerts. Instead of relying
solely on reports, firms should use bundled analysis tools -- like those delivered by
Clarus and RightWorks -- to ask what-if questions about supplier or buyer trends.

Imperative No. 2: Buffer Buyers From Suppliers’ “e” Ineptitude

Firms hamper employee compliance when they arduously set up supplier connections
one at a time. Instead, buying firms must hook into supplier-focused clearinghouses that
act as a translator between their infrastructure and the supplier’s. Supplier clearinghouses
may be marketplaces with slick GUIs or back-office hubs that provide standardized
services. Supplier clearinghouses, which are compensated through supplier fees, help:

• Suppliers to link once and reach many buyers. Suppliers should offer their
catalogs and ordering systems through supplier clearinghouses to hide their
idiosyncrasies from buyers. Suppliers should use vendors like TPN Register or
Harbinger that offer services for catalog maintenance and transaction transmission
or help with data transformation to streamline links.

• Buyers to link once and reach many suppliers. Setting up suppliers one
at a time will not scale. Instead, firms should use supplier clearinghouses like
RosettaNet-ready Viacore’s new back-office “hub” for high-tech supply chain
transactions to hide unique integration requirements. Clearinghouses enable firms
to use preferred infrastructure links -- like XML, email, or EDI -- to reach
suppliers without worrying about proprietary systems and procedures
(see the April 1999 Forrester Report “A Rational Approach To XML”).

Imperative No. 3: Replace Manual Authorization With Smart Payment Processes

Today’s eProcurement process ends with payment authorizations that are bogged down
in detailed three-way matching of requisitions to receipts and invoices. Instead of this
accounts payable quagmire, firms should negotiate with top suppliers -- or their
clearinghouses -- and authorize payment based on:

JANUARY 2000 © 2000 Forrester Research, Inc. Reproduction Prohibited

 Hands-Free Procurement
ANALYSIS

• Electronic certification programs to set performance goals. Supplier 9

certification programs help buyers and suppliers forge win-win relationships.
To achieve this, firms must set goals for responsiveness, order accuracy, and
delivery, and use continuous analysis -- real-time data mining to drive workflow --
to measure results (see the February 1999 Forrester Report “Business-Centered
Data Mining”).

• Shipment advice to authorize payments. Instead of bogging down procurement

applications with clunky matching tasks, firms like Ford and GM use a hands-free
approach to OK payment to certified suppliers upon receipt of a shipment advice.
Employees who do not receive what they ordered fire off exceptions that count
against supplier certification goals and submit a request for an offsetting credit
from the supplier.

• Immediate electronic payment to reward good performance. Firms delay

payments to maximize float, a practice established when interest rates were
approaching 20%. Instead of this antiquated approach to working capital, certified
suppliers that meet performance objectives should be paid instantly through
electronic funds transfer. In return for immediate payment, suppliers should offer
offsetting price breaks. Buyers win with leaner accounting staffs and lower costs.

WORKING WITH HANDS-FREE PROCUREMENT

Hands-free procurement is not the isolated responsibility of a single buyer; it is the
united effort of buyers, suppliers, and new intermediaries. The payoff of hands-free
procurement does not stop with indirect supplies and MRO; the payoff also extends
to direct materials used in manufacturing processes and capital purchases. To achieve
this, firms must conquer three new domains: 1) analytic applications; 2) strategic
procurement software; and 3) supplier clearinghouses.

Analytic Applications Help Firms Optimize And Manage By Exception

Automating procurement processes will get firms only part of the way to reduced costs
and high-performance relationships with suppliers. Firms must also invest up front to
collect and analyze information to tune approval rules, identify buying trends, and spot
contract opportunities. Purchasing staff turn into frontline decision-makers as they track
(see Figure 4 and see the June 1999 Forrester Report “Frontline Decision-making”):

© 2000 Forrester Research, Inc. Reproduction Prohibited JANUARY 2000

 Hands-Free Procurement
ANALYSIS

10 Figure 4 Firms Must Collect Information To Drive Hands-Free Procurement

Data Type
Cost-center Supplier
spending metrics Price
Action
Negotiate contract

Observe employee
preferences
Customize
catalog
Determine product
availability
Measure supplier
performance
Identify pricing
trends
Consolidate
suppliers
Negotiate new
contract

Source: Forrester Research, Inc.

• Cost-center spending by employee, product, and supplier. Keeping track

of spending by cost center lets firms automatically approve all transactions that
fit within budget for a specific time period. Firms must trade budget maintenance
effort against time required to stop every transaction for review. Tracking total
spending by product with data collected by Ariba or Commerce One triggers
exception warnings to purchasing staff that volumes are approaching contracted
levels and new discounts must be negotiated.

• Supplier product availability, acknowledgement, and delivery times. Firms

must accumulate supplier performance data in real time and use it to drive
workflow from vendors like SAP or Oracle -- like decertifying suppliers based
on negotiated delivery times -- and likewise provide “missing supplier” warnings
if employees are repeatedly requisitioning unavailable or hard-to-get products.

• Prices by product, supplier, and geography. Corporate purchasing staff must

use price information to determine if suppliers are overcharging in some regions
or charging prices that warrant seeking alternatives. Watchful purchasing agents

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 Hands-Free Procurement
ANALYSIS

Figure 5 Procurement Vendors, Ranked By Market Position 11

ed g se Full Some No
b as nin lier hou ic ools s capabilities capabilities capabilities
- io p g m t t l
u les isit up arin y na ing irec eria
R qu S le D ric D at
re c
Vendors Comments
p m
Market leader known for usability; trailing
Ariba Commerce One with supplier links
Will Survive

Commerce Leads with supplier links; backing away from

One pushing own requisitioning tool
Good workflow; good potential with direct
Oracle materials, will play to installed base
SAP Less aggressive than Oracle but same key
characteristics; will play to installed base
Clarus Built-in analysis tool; direct buyer-to-supplier
links
Sun-Netscape Good support for exchanging trading info; no
supplier clearinghouse connections
May Survive

SupplyNet hosted catalog service acts as

Intelisys clearinghouse for suppliers
PeopleSoft Links to Commerce One’s MarketSite; similar
direct material potential to Oracle, SAP
Concur Partnered with Nortel to deliver worldwide as
British Telecom did with Commerce One
Fewer than 10 customers; built-in analysis tool;
RightWorks links to Commerce One’s MarketSite
Source: Forrester Research, Inc.

must be able to react quickly if limited product availability from one supplier is
driving prices of critical supplies out of bounds.

All Procurement Vendors Are Not Created Equal

As firms redirect their energies to hands-free approaches for both indirect and direct
spending, a vendor’s survival will depend on its ability to support exception-based
processes, dynamic pricing tools, and direct materials procurement (see Figure 5).
Sizable barriers to entry -- like a critical mass of suppliers and hefty partnership
requirements -- mean that few procurement app vendors will survive with their current
offerings as:

• Requisitioning software becomes free and links to marketplaces cost money.

Vendors like Ariba, Intelisys, and Commerce One will stop charging for
requisitioning by 2001, once they realize that the value is in the supplier network
infrastructure and links (see the September 10, 1999 Forrester Brief “eBusiness
Networks: The Frontier Comes Into Focus”). For these firms, revenue will come
from transaction fees and hands-free services.

© 2000 Forrester Research, Inc. Reproduction Prohibited JANUARY 2000

 Hands-Free Procurement
ANALYSIS

12 Figure 6 How Procurement Players’ Roles Will Evolve

Role Today Role By 2002

eMarketplaces Support buyers;

Support suppliers
fees to buyers

Connected to many buyers and Connected to one

Suppliers clearinghouse in each
marketplaces
industry

Supplier A service of eMarketplaces; Stand-alone businesses;

clearinghouses charged to buyers and charged to suppliers only
suppliers

Focused predominantly on Focused on marketplace

Software vendors requisitioning software; software;
license revenue annuity revenue

Source: Forrester Research, Inc.

• Direct materials give ERP and supply chain vendors a new advantage.
Manufacturing firms typically exhibit a 50-50 split between MRO spending and
direct materials -- purchases used directly in the firm’s products. By 2002, vendors
like i2, Oracle, and SAP with large manufacturing installed bases will capitalize by
tying MRP and supply chain software to hands-free transmission, payment, and
analytic processes. Collaborative design tools like Parametric’s Windchill will link
component designs to suppliers’ on-hand inventory.

Supplier Clearinghouses Become The New Intermediary

Supplier clearinghouses -- which help suppliers by simplifying links -- will enable
buyers and suppliers to set up one connection to the clearinghouse instead of many
to individual suppliers and buyers. Today, clearinghouse services are offered by
marketplaces like MarketSite.net or the Ariba Network, catalog services like Harbinger
or TPN Register, or MRO distributors like Grainger or Ingram Micro. Today’s players
will take on new roles over time as (see Figure 6):

• New clearinghouse pure plays are launched. Viacore, the clearinghouse for
RosettaNet transactions, is one of the first clearinghouses with no buyer user
interface or catalog service. More clearinghouses will form in 2001 and beyond

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 Hands-Free Procurement
ANALYSIS

when vendors isolate this service from marketplaces because clearinghouses enable 13
suppliers to reach many markets without multiple connections.

• eMarketplaces defer to clearinghouses for supplier connections.

eMarketplaces will focus on what they do best -- recruiting communities of
buying and supplying companies, offering transactions and financial services,
and providing industry-specific services -- and defer the connection problems
to supplier clearinghouses as they become available. By 2001, eMarketplaces will
back away from this service and worry more about competition for limited buyer
attention and dollars (see the December 1999 Forrester Report “Net Marketplaces
Grow Up”).

© 2000 Forrester Research, Inc. Reproduction Prohibited JANUARY 2000

 Hands-Free Procurement
ACTION

14
ACTION
Hands-free procurement requires buyers, suppliers, vendors, and supplier clearinghouses
to work together to automate processes. Software vendors must:

Partner with integrators that can help with the analytics.

Procurement software vendors are faced with a struggle to balance a long and
distracting list of priorities -- like supporting global requirements, forming
ASP partnerships, and growing supplier networks. Other than ERP firms, most
will not have the focus or skill to also link continuous analytics and procurement
workflow. Instead, vendors like Ariba and Commerce One should use their
partnerships with integrators to help clients get the most out of generated data.

Shift integration emphasis from internal to external connections.

Instead of linking procurement apps tightly to ERP purchasing, HR, and
inventory systems, eCommerce integrators should guide users to make only the
lightest of connections inside firms. Instead, energy should be expended outside
to ensure that accounts payable systems are linked to electronic funds transfer
(EFT) services, suppliers are linked to clearinghouses, and users can launch bid
processes for big-ticket items (see the January 2000 Forrester Report “Brokered
Partner Integration”).

Suppliers must:

Upgrade outward-facing systems to ease clearinghouse links.

Suppliers must target system-upgrade projects for smoothing external
connection points -- like catalog updates, order input, or shipping
confirmations -- so that manual work is eliminated. At the same time, training
staff in technologies like XML will prepare suppliers to work effectively with
clearinghouses to support buyer requirements.

Provide catalog customization tools.

To ease creation of one-click catalogs, aggregators should provide tools from
vendors like Mergent that help buyers and supplier clearinghouses apply
business rules to catalog views. This includes tagging data with easy-to-interpret
labels -- like product category, vendor, and specifications -- and transmitting
subsets through a standard “commerce API” (see the August 1999 Forrester
Report “Building A Commerce API”).

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 Hands-Free Procurement
W H AT I T M E A N S

W H AT I T M E A N S 15

As hands-free processes proliferate in procurement implementations, firms will look past

office supplies and travel for the next big opportunities as (see Figure 7):

RFP and bid software helps with large purchases.

Two recent acquisitions -- Ariba’s acquisition of TradingDynamics and
Commerce One’s purchase of CommerceBid -- highlight the importance of
dynamic pricing tools to help firms buy off-contract goods. RFP and bid systems
will become commonplace by 2001, allowing firms to supplement static catalogs
with processes to get bids on capital purchases.

New service architectures help firms buy in their own context.

By 2001, vendors like HP, Oracle, and IBM will market software to help
systems -- not people -- locate noncatalog items across the Net. HP’s e-speak,
for example, enables firms to create a service request with an associated policy
to locate suppliers that match the policy.

Electronic payment processes will eliminate check writing.

By 2002, supplier clearinghouse services will provide vendor EFT setup services
so firms can pay certified suppliers electronically for contracted items.
For noncatalog purchases -- like relocation and car rental -- or low-volume
suppliers, employees will use corporate procurement credit cards that are
programmed to check a firm’s purchase authorizations and valid product
categories.

Consumed direct materials will be automatically replenished.

By 2002, firms and trusted suppliers will extend automatic replenishment to
support self-diagnosing machine tools that trigger replacement requisitions.
Grainger uses this practice today by calculating the number of its parts used
in shipped orders to automatically ship out replacement quantities.

Supplier clearinghouses will deploy nonstop infrastructure.

These back-office hubs will be the transaction-processing equivalent of mission
control -- it will be unthinkable to interrupt business for system maintenance.
Vendors like UCCnet or ECOM Worldwide will set up nonstop infrastructure
that keep them out of The Wall Street Journal downtime hall of fame (see the
January 1999 Forrester Report “Nonstop eCommerce”).

© 2000 Forrester Research, Inc. Reproduction Prohibited JANUARY 2000

 Hands-Free Procurement
W H AT I T M E A N S

16 Figure 7 The Time Line Of Hands-Free Procurement

Pure-play Supply chain and MRP Automatic Set up services

clearinghouses outputs tie into hands- replenishment is for EFT through
launch free process standard in eBusiness clearinghouses
networks

External
processes

Internal
processes

Workflow Analytical Procurement cards Service architecture is

exploits supplier outputs link embed company policy embedded in
certification into workflow for noncatalog spending eProcurement software
process rules

2000 2001 2002

Source: Forrester Research, Inc.

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 Hands-Free Procurement
R E L AT E D M AT E R I A L

R E L AT E D M AT E R I A L 17

Companies Interviewed For This Report

Andersen Consulting Harbinger
www.ac.com www.harbinger.com
Ariba Hewlett-Packard
www.ariba.com www.hp.com
Aspect Development Intelisys
www.aspectdevelopment.com www.intelisys.com
Baan Sun-Netscape Alliance
www.baan.com www.iplanet.com
Boise Cascade OnDisplay
www.boisecascade.com www.ondisplay.com
Cambridge Technology Partners Peregrine Systems
www.ctp.com www.peregrine.com
Captura Requisite
www.captura.com www.requisite.com
Center for Advanced Purchasing Studies RightWorks
www.capsresearch.org www.rightworks.com
Clarus SAP
www.claruscorp.com www.sap.com
Commerce One SupplyWorks
www.commmerceone.com www.supplyworks.com
Concur TPN Register
www.concur.com www.tpnregister.com
Deloitte & Touche Trilogy
www.deloitte.com www.trilogy.com
Ernst & Young W.W. Grainger
www.ey.com www.grainger.com

Related Research
January 24, 2000 Forrester Brief “Hands-Free: A New Trajectory For Business Apps”
January 2000 Forrester Report “Reining In Online Suppliers”
January 2000 Forrester Report “Brokered Partner Integration”
December 1999 Forrester Report “Net Marketplaces Grow Up”
September 10, 1999 Forrester Brief “eBusiness Networks: The Frontier Comes
Into Focus”
August 1999 Forrester Report “Building A Commerce API”
February 1999 Forrester Report “Business-Centered Data Mining”
January 1999 Forrester Report “Buy-Side Market Realities”
January 1999 Forrester Report “Nonstop eCommerce”

© 2000 Forrester Research, Inc. Reproduction Prohibited JANUARY 2000

 Hands-Free Procurement
GRAPEVINE

18
GRAPEVINE
Closing the books -- over before it starts.
In the hands-free procurement world, it’s not hard to imagine the demise of end-of-
month closing gyrations as one-day payment processes begin to dominate transaction
volumes for both buyer and supplier firms. With no transactions to match or receivables
left to collect, accounting staff on both sides will have to find new things to do. Maybe
they could take a cue from wised-up procurement teams and spend quality time on
historical analysis.

……

Back to the 1980s with exception-based processing.

Dave Goudge, vice president of marketing at Boise Cascade, told us about a three-year
pilot with the General Services Administration more than 15 years ago: “The GSA
offered to pay the amount we billed, every 15 days, without question. If there were any
exceptions, like a user who didn’t get a pen, we would send a pen, no questions asked.
Likewise, we had to pay a penalty every time service levels dropped. We never paid a
penalty in three years.” Imagine the possibilities with online supplier certification.

……

How does hands-free procurement resemble an HMO?

A recent news item caught Forrester’s eye: UnitedHealthcare, one of the largest US
health maintenance organizations, decided to eliminate a requirement for doctors to
obtain advance authorization for medical procedures. Turns out that administrators were
tied up a minimum of 20 minutes per authorization -- and 99% of the procedures were
being approved. So the company decided to analyze doctor behavior after the fact and
focus on actions outside HMO guidelines. We thought this was a compelling case for
lifting the approval grip on office supply procurement.

……

Gotta integrate the app with my inventory “system,” Joe.

Ian Williams, CEO of RightWorks, clued us in on one firm’s project: “The procurement
manager insisted that the new system had to check on-hand inventory before sending
requisitions to suppliers. When we asked about their inventory system, they told us that
the data in their existing system was wrong, so they kept manual records as to where all
of their supplies were.” We think it’s going to be tough to set up that automated supplier
clearinghouse link.

JANUARY 2000 © 2000 Forrester Research, Inc. Reproduction Prohibited

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The Forrester Report

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JANUARY 2000

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Hands-Free Procurement

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P E R F O R AT I O N

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By Laurie M. Orlov

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With Ted Schadler

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Eroica Howard

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A LO N G

Liz Leyne

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QUICK VIEW

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High-touch approaches to “electronic” procurement will

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fall short of full potential. To reach the next level of

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savings, firms -- and their suppliers -- must make every
stage of procurement hands-free.

M A R K E T O V E RV I E W
• eProcurement hype promises lower spending and costs.
• Shifting legacy processes to the Net won’t cut it.

A N A LY S I S
• Firms must adopt hands-free processes to get full benefit.
• Hands-free procurement is managed by exception.
• Once conquered, hands-free MRO procurement can be
extended to direct materials and dynamic pricing.

ACTION
• Vendors should help firms focus on external integration.
• Suppliers must upgrade external software to ease links.

W H AT I T M E A N S
• Electronic payment to suppliers will end check writing.
• Supplier clearinghouses will deploy nonstop technology.

Forrester Research, Inc. 400 Technology Square, Cambridge, MA 02139 USA 617/497-7090 Fax 617/613-5000
Forrester Research B.V. Emmaplein 5, 1075 AW Amsterdam, Netherlands +31 (0) 20 305 43 00 Fax +31 (0) 20 305 43 33
www.forrester.com
ACTION
Hands-free procurement requires buyers, suppliers, vendors, and supplier clearinghouses
to work together to automate processes. Software vendors must:

Partner with integrators that can help with the analytics.

Procurement software vendors are faced with a struggle to balance a long and
distracting list of priorities -- like supporting global requirements, forming ASP
partnerships, and growing supplier networks. Other than ERP firms, most will
not have the focus or skill to also link continuous analytics and procurement
workflow. Instead, vendors like Ariba and Commerce One should use their
partnerships with integrators to help clients get the most out of generated data.

Shift integration emphasis from internal to external connections.

Instead of linking procurement apps tightly to ERP purchasing, HR, and
inventory systems, eCommerce integrators should guide users to make only the
lightest of connections inside firms. Instead, energy should be expended outside to
ensure that accounts payable systems are linked to electronic funds transfer
(EFT) services, suppliers are linked to clearinghouses, and users can launch bid
processes for big-ticket items (see the January 2000 Forrester Report “Brokered
Partner Integration”).

Suppliers must:

Upgrade outward-facing systems to ease clearinghouse links.

Suppliers must target system-upgrade projects for smoothing external
connection points -- like catalog updates, order input, or shipping
confirmations -- so that manual work is eliminated. At the same time, training
staff in technologies like XML will prepare suppliers to work effectively with
clearinghouses to support buyer requirements.

Provide catalog customization tools.

To ease creation of one-click catalogs, aggregators should provide tools from
vendors like Mergent that help buyers and supplier clearinghouses apply
business rules to catalog views. This includes tagging data with easy-to-interpret
labels -- like product category, vendor, and specifications -- and transmitting
subsets through a standard “commerce API” (see the August 1999 Forrester
Report “Building A Commerce API”).

© 2000 Forrester Research, Inc. Reproduction Prohibited JANUARY 2000