Outsourcing: Ed Cross, Executive Director – Procurement & HRO at Xchanging (Part 6)

Sramana Mitra: There are some very special exchange offerings in the automotive industry and several other spaces. There are very successful vertical exchanges operating right now doing billions of dollars in transactions.

Ed Cross: Probably from the European end, but I see very little activity. It may well be the case that they’re successful in the US, but I don’t necessarily see them amongst my customer base and in my network of procurement professionals. I don’t necessarily see much evidence of them operating anywhere else in the world other than in certain industry sectors.

Sramana Mitra: Probably in the insurance sector where this trend is not so high. The trend is very significant in the manufacturing sector.

Ed Cross: I don’t have enough expertise in the area but uptake of vertical or horizontal portals has not been massive or broad. I’ve worked with a number of manufacturing companies in the US both with Xchanging and PricewaterhouseCoopers. They don’t necessarily offer the level of value to a lot of sectors in terms of the price point that other methods and solutions could offer, whether that’s procurement outsourcing or in-house procurement operation doing their own thing.

Sramana Mitra: Where I agree with you is that in a lot of the systems like Ariba, they are based on old architecture. Ariba has been around since mid to late ’90s and architecturally, things have changed dramatically since then. That possibly, creates more of an opportunity for newer and lighter weight, more user-friendly systems that would make life a lot easier for the users. Over time, that is a reasonable observation. There are tremendous usability issues with the current systems.

Ed Cross: Ease of use is critical. Ease of use is probably more important than ultimate functionality. Increasingly, users of systems are going to look to systems that are very easy to use and intuitive in the way that Amazon, eBay, and other systems are. As companies program in new languages outside of Java and move towards Ruby, which is what Cooper uses and which is highly relational and drives a very easy interface for the user of the system, ease of use will come to the fore. What I’ve seen in the procurement landscape is a whole myriad of e-sourcing vendors but their systems aren’t used by their customers because they’re too difficult to use, such as the procurement function and the auction capability within the niche sourcing solution.

The customer procurement function doesn’t actually use the system because it’s too hard to use. Therefore, the winners are going to be those organizations that provide solutions that are very easy to use, intuitive, and people could just pick it up and get a good experience from it. All of us are consumers and we’re used to using technology that works and is intuitive. Even I have sold things through eBay and I’ve done it without any training and people expect to receive the same experience when they’re using systems at work. Ease of use will absolutely come to the fore and possibly, above function. A lot of the older school solutions have been driven by function. I don’t think that’s what drives adoption.

You have also mentioned about industry verticals in procurement. I’m not convinced that they give the best deals, so the hardy procurement professional, the buyer, still gets better deal economics by cutting their own deals than through industry portals. I’ll be pleased to be proven wrong on that but I think the biggest benefit often comes from running your own deals and running your own events such as auctions to get the best price. They don’t necessarily come through industry solutions for procurement.

This segment is part 6 in the series : Outsourcing: Ed Cross, Executive Director – Procurement & HRO at Xchanging
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