One of the strongest IT urgencies today is to use software to automate as much of the supply chain as possible. But, the supply chain is a vast and complex series of tasks that has thus far daunted many of the software vendors and IT professionals contemplating its automation. Many organizations have come to the conclusion that it's not realistic to automate the entire chain at the moment. They have decided, instead, to focus on the procurement links of the chain. This focus explains why the term "supply chain" is so often misappropriated of late; most people uttering the term really have procurement – or even a subset of procurement – in mind.

Procurement is certainly a good place to start with supply chain automation, because it is fairly well understood as a business practice, amenable to software automation and a complicated business process that many corporations and government agencies would like to improve with automation.

THE HURWITZ TAKE: But why the urgency? It's because the business-to- business (B2B) environment is evolving into a fast-paced – even frenzied – arena where extreme competition, accelerated by the "digitization" of e- Business, leads companies to plug and play suppliers with a fluid commodity methodology. Keeping pace with ever- changing supplier relationships and procurement opportunities requires software automation, whether developed and hosted in-house (typically by a purchaser), out-sourced to trading exchanges and other Internet-based entities, or implemented through a combination of both.

For an electronic procurement system to be both efficient and effective, however, it demands an analytic approach. If plugging and playing suppliers is based on a single criterion – many procurement specialists obsess over price – then it is doomed to failure, because price is only one dimension of cost. For example, a supplier can propose the best bid, but then nickel and dime the purchaser with late delivery, back-ordered shipments, and a high defect rate. With complete information – collected from multichannel sources across an enterprise as well as from external sources – procurement specialists can anticipate the risk of doing business with a given supplier. An analysis of the historic relationship with that supplier (compiled from internal data), combined with a corporate profile of the supplier (brought in via external data), reveals the risks.

Without the complete picture drawn by multichannel data – and analytic software to leverage it – there are few options for managing the ubiquitous risks of the upcoming supplier relationship frenzy. Therefore, organizations that depend on procurement should prepare for the new B2B environment by implementing software that manages and analyzes supplier relationships as an analytic approach to optimizing procurement for lowest total cost and least risk.

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