World Academy of Science, Engineering and Technology 28 2007

The Supplier Relationship Management Market

Trends
Eulálio G. Campelo F., and Wolffried Stucky

asset for companies, which has to be managed and distributed

Abstract—The paper introduces and discusses definitions and to their stakeholders.
concepts from the supplier relationship management area. This Hence, the application of information technology and the
review has the goal to provide readers with the basic conditions to formation of electronic networks have become an important
understand the market mechanisms and the technological part of corporate strategy. This statement is especially true in
developments of the SRM market. the management of company’s relationship with their
Further on, the work gives a picture of the actual business suppliers.
environment in which the SRM vendors are in, and the main trends in
In this work, the focus of the analysis will be on the market
the field, based on the main SRM functionalities i.e. e-Procurement,
e-Sourcing and Supplier Enablement, which indicates users and and functions of the information systems that support the
software providers the future technological developments and business processes between organizations and their suppliers
practises that will take place in this area in the next couple of years. i.e. Supplier Relationship Management (SRM). Here are
included transaction systems such as electronic sourcing,
Keywords—Supplier Relationship Management, e-Procurement, electronic procurement and supplier enablement.
e-Sourcing, Supplier Enablement.
II. SUPPLIER RELATIONSHIP MANAGEMENT
I. INTRODUCTION
The concentration strategy on key functions and expertise,

T HE modern economical environment is gaining far-

reaching complexity and competition. Companies of all
sectors are facing continuous changes in the market forces due
which has been adopted by many leading industries, has
forced the evolution of company’s procurement from an
administrative and short-term driving function to a strategic
to the liberalization of trade and the impact of new activity in which firms turn their business in search for
communication means, improved logistics services and performance improvements.
electronic banking systems, and other factors, that have lead Consequently, supply chain management and purchasing
to a clear increase in global competition [1],[2]. performance are increasingly recognized as an important
This new economical environment and the globalization determinant of a firm’s competitiveness. Therefore, in order to
process are changing the competition behavior across support the great variety of product and services purchasing
industries. These changes are leading to a revolution in processes and to integrate different business partners in an
business strategy that has been postulated by numerous electronic network. Supplier relationship management systems
strategy researchers [3]. were developed to coordinate and automate the process
Organizations had to rethink their way of doing business, concerned with the supplier integration and communication.
based solely on their internal resources toward a more Supplier relationship management is the part of the supply
dynamic strategy, benefiting from their internal improved chain management, which deals with all aspects of the
operations and closer communication with their business business relationship between companies and their suppliers.
partners to overcome those challenges. SRM, on the other side, describes the business structures
In resume, as Ohmae (1994) has predicted, the modern and processes required by companies to communicate with
information technology is making traditional borders obsolete. their suppliers, while providing methods, processes and tools
Not only between nations, but especially between to support the different phases of a direct supplier
organizations, creating a “global village”. This phenomenon relationship, e.g. identification, evaluation, qualification, and
has created a new business environment in which companies if necessary termination [5].
compete no longer as a single legal entity, but as supply Although a number of software vendors state to possess a
chains [4], and information has become the most valuable single SRM solution the work will treat SRM as a
combination of stand-alone modules/suites specialized in part
of the procurement process, building a set of functionalities
that enable the communication and integration of multiple
Eulálio G. Campelo F. is with the Institute AIFB, University of Karlsruhe,
channels and the automation of the purchasing and sourcing
Englerstrasse 11, 76131 Karlsruhe, Germany (e-mail:[email protected]
karlsruhe.de). process between two or more independent organizations e.g.
Wolffried Stucky is with the Institute AIFB, University of Karlsruhe, electronic sourcing, electronic procurement and supplier
Englerstrasse 11, 76131 Karlsruhe, Germany (e-mail:[email protected] enablement.
karlsruhe.de).

105
 World Academy of Science, Engineering and Technology 28 2007

A. E-Sourcing such as services procurement, as well as the post-procurement

The sourcing activities take place at the beginning of the stages, such as invoicing, reconciliation and settlement [8].
purchasing process prior to any transaction. It has its main This solution has its focus on the reduction of the purchase
focus on the negotiation process of direct goods and it is a department’s administrative costs, by the electronic support
critical element of the strategic purchasing. In addition, and automation of the operative purchasing processes.
sourcing is a process to develop supplier strategy and Desktop Purchasing System has enabled companies to
subsequently support its execution. change their traditional centralized structures to a more
The main goal of these systems is to support buyers to find decentralized one, allowing employees to realize their
the most appropriate supplier for a good, and the foreground is requisitions directly from their workplaces applying web
the negotiation phase of the purchase process in which applications, whereas companies could establish specific
professional buyers search for the most appropriate product rights and budgets to their internal customers to place orders,
source for a company based on price or any other established their supervisors to authorize the requisition, the warehouse to
criterion. acknowledge the delivery and the finance department to emit
Electronic auctions and electronic request for quotation and pay the invoice.
(RFQ) are the two most know negotiation form applied in e- e-Procurement solutions are adequate to support the
Sourcing and are often used in the practices as a synonym of purchase of indirect, low value and standard products. These
these terms. products represent around 5% of the purchasing volume, but
Auction is a form of bid that has been used since the generate up to 80% of the total purchasing process costs of a
antiquity to establish the sell price through a transparent company, 60% of the orders and 70% of the suppliers [9].
selling process of goods. At the beginning, e-auction systems Services and complex products are currently not
had their focus exclusively on price negotiation, leaving out of appropriately supported by those systems, or the electronic
their scope all other relevant negotiation factors e.g. quantity, purchase of the former products is possible just with a high
quality, delivery time. level of system customization.
Nowadays, a new generation of auctions systems based on The core component of a desktop purchasing system is the
business intelligence technology allows the negotiation of catalogue engine to search and select goods online, and in
multi-attribute criteria during the online auction and the case the organization applies a multi supplier catalogue
continuous control of supplier performance. approach, the content management system to create and
The RFQ process is in some extend similar to the auction maintain the catalogue data [10]. Furthermore, the system
process. Thus, what is true for e-auctions can be applied also relies on business rules and authorization mechanisms to
for e-RFQ. The main difference between RFQs and auctions is support organizations directives and specific purchase
the lack of standardization in terms of explicit, formal rules processes.
and regulations in RFQs [6]. The integration of those systems is supported by the
E-RFQ can be applied during the negotiation process of application of standards as the Extensible Markup Language
complex products and services in which extensive technical (XML). Currently, there are several data exchange formats
description and complex calculation are required e.g. based on XML e.g. xCBL, cXML, BMEcat [11]. On the other
construction project, facility management services [7]. On the hand, to facilitate the electronic product information transfer,
other hand, e-auctions are appropriate for products which have companies rely on material classification standards as eCl@ss
a well defined demand in a high volatile market with a large and UNSPSC to increase transparence and reduce
number of suppliers e.g. commodity. communication costs.
In addition to negotiation and supplier evaluation
functionalities, e-Sourcing solutions should include contract C. Supplier Enablement
management tools to provide companies with a precise Enterprise integration is undeniably a critical issue for
overview of their contracts and commercial agreements. The companies in all business sectors striving to maintain a
main function of these tools is the centralization of contractual competitive edge [12]. Most of the key business players have
content and the compliance of established commercial realized that their success in their e-business activities
arrangements. depends on their business processes synchronization with their
trade partners, by connecting their organizations directly or
B. E-Procurement indirectly with the back- and front-end systems of both
The definition of e-procurement is a reason for evident organizations, using an appropriate gateway to exchange
confusion in the literature and in the practices. A number of commercial and marketing.
definitions describe e-procurement as a general technology Supplier enablement is the channel that enterprises use to
that allows the purchase of supplies using the Internet. integrate with their trade partners and realize their e-sourcing
This paper shortens this general view of e-procurement to and e-procurement activities. The two main forms in that
software that enables organizations to purchase indirect and supplier enablement takes place in companies are through the
MRO goods online, automates the buying processes and application of supplier portals and/or e-marketplaces.
centralizes all spending data. The technology has progressed A company’s portal is defined as a web based application
from enabling simple transactions to cover broader categories that makes available personalized content as well as the rights

106
 World Academy of Science, Engineering and Technology 28 2007

to operate specific collaboration processes between can be hardly differentiated from their competitors in the
heterogeneous groups [13]. market.
In the case of supplier portals, they create the basis to This finding has been shown by the later studies from the
connect suppliers with their buyers, with the focus on most important research institutes of the area [16], [17], [18],
purchasing processes and the exchange of transactions data. [19], [20], [21]. Forrester research (2005) found that the
They offer a structured and customized gateway to improve average scores for goods procurement, settlement, and process
the business relations between two or more business partners. configuration are consistently strong across all vendors,
On the other side, e-marketplace is described as a virtual averaging close to 4 (on scale of 1 to 5) with a standard
online market where buyers, suppliers, distributors and sellers deviation of less than 1.
find and exchange information, conduct trade, and collaborate The same research institutes found that the most
with each other via an aggregation of information portals, competitive e-procurement providers are SAP, Oracle and
trading exchanges and collaboration tools [14]. Ariba, although none of them reached the highest
It is crucial for an efficient procurement strategy that these technological level/rate, suggesting that there are still areas,
channels are not isolated in the enterprise’s intranet, but rather which require further developments.
they should be integrated with companies’ front-end and back- One of those areas is the support of more complex material
end systems in order to integrate their inter-processes and groups and services, as the current protocols and standard
automate the data exchange. At the same time, it is formats e.g. BMEcat provide a solution just for a limited
recommend that their users have the possibility to access them number of material groups, and in the case of services,
anywhere, at any time, regardless of the distance and the sort because of its variety and differentiated data model, a new
of device there are using e.g. computer, laptop, Personal protocol based on configuration rules has to be developed to
Digital Assistant (PDA). allow the description and price formation of the service
In addition, supplier portals and e-marketplaces should purchased.
include in their functionality spectrum, a number of features to Furthermore, the compliance management is an issue that
facilitate and secure their use by company’s employees e.g. has not been properly addressed by the e-procurement
Navigation and search tools, reporting and notification vendors, and it is a top theme on the procurement executive
functions. Since the acceptance and success of those channels agenda. Therefore, a higher integration level has to be
depend on the willingness of these employees to use these achieved with other systems of the organization in order to
channels in their daily procurement activities converge the procurement data and even to eliminate
redundant systems across the enterprise.
III. THE SUPPLIER RELATIONSHIP MANAGEMENT MARKET B. e-Sourcing Functionalities
The SRM market is in constant growth, most of the market In contrast to the e-procurement functionalities, most of the
researches in this area e.g. [15], [16], [17] shows a growth rate e-sourcing functionalities have still not achieved its maturity,
greater than 10% per year between the main vendors, who can and there is not a single provider that can be classified as a
be divided into two distinct classes: leader [22].
• The ERP vendors, who offer their SRM system as a The market is characterized by the presence of a number of
module of their product portfolio, which has as the best-of-breed vendors that are rated by the research institutes
main advantage the high integration capacity with the as specialist in their area e.g. FreeMarktes (auctions),
other modules of the same vendor, reducing the Emptoris (complex bid processes), I2 (Spend Management),
implementation cost and time. Contracto (Contract management).
• The best-of-breed providers, who are specialists on It is in this area of the supplier relationship management
SRM systems or part of the system e.g. e-Procurement, that most investments in research and development have been
e-Sourcing, Supplier Enablement, who offers their done in the last years and the consolidation process is more
products to the market as an alternative to the ERP present.
providers or concentrate their efforts in niche markets. For the next couple of years, it is expected that the new
The market is going through a consolidation process, which developments will still concentrate on this area, improving the
will continue during the next years. This is characterized by current functionalities as spend and contract management. At
the numerous merger and acquisition activities that have been the same time, a higher integration between the current
occurring e.g. Ariba-FreeMarkets (2004), Oracle-Peoplesoft technologies available is foreseen, especially as a result of the
(2005), SAP-Fricionless (2006). consolidation process through merger and acquisition as well
On the other side, a detailed analyses of the SRM as strategic partnerships.
functionalities shows that the market has different maturity At the moment, the e-Sourcing market has a huge growth
grades and potential growth rates while comparing different potential, which can be explained by the high company’s
features i.e. e-Procurement functions are in average much expectations on these solutions. A study from the BME &
more mature than the e-Sourcing functions. Siemens [23] showed that the majority of the enterprises
expect a 10-25% process costs reduction and a 5-10% material
A. e-Procurement Functionalities costs reduction through the application of SRM solutions. And
The e-procurement applications of the main providers have according to ARM Research (2005) and IDC Research (2005)
achieved already their technical maturity and their functions there is an evidence to suggest that this growth of the SRM

107
 World Academy of Science, Engineering and Technology 28 2007

market is leaded by the e-Sourcing applications rather than the Enterprise are also starting to enhance the integration
relative mature e-Procurement solutions. between contract management solutions and other sell-side
and buy-side systems, such as pricing, order management, and
IV. THE SUPPLIER RELATIONSHIP MANAGEMENT TRENDS invoicing in order to gain visibility and to prevent revenue
The universal trend in the area of supplier relationship leakage and lengthy processes [17].
management goes towards the process cost reduction and C. Services Procurement
compliance. Nowadays, the interest of the organizations is to Service procurement processes are still a source of high
build flexible electronic processes that support and customize costs to companies, and due to its complex and heterogeneous
their business processes, at the same time that they are able to purchasing processes, few companies up to now have tried to
adapt the enterprise to the constant market changes. support those processes via the application of web-based
Therefore, for the next couple of years it is unlikely that information systems.
SRM moves outside its current basis: e-Procurement, e- Nonetheless, this scenario is changing, the survey
Sourcing and Supplier Enablement. Instead, what is expected “eBusiness-Barometer 2006/2007” have shown that around
is the consolidation of the current functionalities and 70% of the industrial enterprises in Germany rated services
practices, especially the ones that have still not achieved its procurement as a high or very high relevant aspect of their
maturity: business process outsourcing, contract management, SRM activities.
service procurement, spend and supplier intelligence, process Different from the MRO (Maintenance, Repair and
integration, among others. Operations) materials, services procurement processes have
A. Business Process Outsourcing (BPO) hardly data transfer standards, and few IT vendors provide
During the last years there was a wave towards the specialized tools to support this business process.
application of service providers in the supplier relationship Hence, there is a need to develop electronic data transfer
management market. Although earlier utilization of those models and standards to foster the development and
services leaded to a reduction in process improvement application of web-based information systems during the
benefits, because of workflow and integration issues. services negotiation and buying process between companies
Currently, a research from Gartner [24] showed that 42% of and their suppliers.
the European respondent and 36% of the American Some initiatives in this direction have already taken place in
respondents are already using some form of procurement Germany with the research projects Services Standardization
BPO. The delegation of IT-intensive purchasing processes to and AIR-CRAFT. Nevertheless, further developments have to
an external provider that, in turn, owns, administers and be done by the IT vendors in order to build appropriate tools
manages selected processes, based on defined and measurable and interfaces to facilitate the management of service
performance metrics. procurement, since companies are seen this area as the next
The factors in favor of business process outsourcing e.g. frontier in their e-procurement projects.
rapid deployment, lack of IT resources, access to new D. Spend and Supplier Intelligence
technology/skills and cost, are convincing supply chain The transparence of the purchase processes and data is a
managers to invest on these services and their respective key factor for an e-procurement program success. However,
integration projects rather than massive implementation and currently only one in every five companies applies spend
enterprise-wide deployments [17]. management tools to control their procurement activities [27].
B. Contract Management On the other hand, the selection of suppliers based just on
The benefits of contract management is gaining more and product price has leaded to numerous disadvantages to
more attention from companies, given the amount of manual suppliers and buyers. These disadvantages have made
processes currently involved in contract negotiation and purchasing departments to change from a price based supplier
compliance procedures, there is no reason that contract selection to a broader selection model, in which suppliers are
management applications vendors cannot double or triple their no longer selected based solely on prices, but also in aspects
installations over the next few years [25]. such as product quality and warranty [28].
The contract management providers can offer their systems The utilization of business intelligence technology to
in two ways: As a part of their Sourcing-Suite or as a extract and analyze possible cost savings and support the
Standalone solution. Since companies have different design of supplier selection/evaluation and spend saving
requirements and processes regarding contract management, programs in a company is a major goal of modern purchase
there are opportunities for both business models. departments.
Technically speaking, contract management system has Since most researches suggest that those systems still in its
started its deployment on the buy-side with the management infancy and most companies have still not deployed this
of supplier contracts. Nonetheless, the market should start a technology, the market of spend and supplier intelligence
convergence between sell-side and buy-side contract applications should continue its high growth rate in the next
management solutions, that should provide to companies a years.
central document management, reports, analysis and The near future developments in this area should focus on
compliance rules, based on an unique master data [26]. reporting and analytical features as well as Key Performance

108
 World Academy of Science, Engineering and Technology 28 2007

Indication (KPI) definition models. In the long run reporting ERP vendors have to catch up this technological disadvantage,
tools with automatic commutation with end-user are expected. or their integration capabilities will no longer secure their
place in the SRM market.
E. Process Integration
All the trends listed above and any other development in the REFERENCES
area of supplier relationship management should have as the
[1] Nahar, N., It-enabled Effective and Efficient International Technology
main goal the complete integration of company’s business Transfer for SME’s, Proceedings of the Evolution and Challenges in
processes. System Development, September, Bled, 85-98, 1998a.
It has to be noted that during the development of any suite, [2] Nahar, N., It-enabled International Promotion of Technology Transfer
for High-Tech Enterprises, Proceedings of the UIC/AMA Research
module or a standalone solution, the main focus should not
Symposium on Marketing and Enterpreneurship, August, Boston, 1998b.
rely on the features conception, but rather on the entire [3] Hammel, M., and Prahalad, C.K., Competing for the Future, Harvard
business process. Business School Press, Boston, 1994.
Service Oriented Architecture (SOA) is an option to [4] Christopher, M., Logística e Gerenciamento da Cadeia de Suprimentos.
facilitate this approach by providing an environment in which São Paulo: Ed. Pioneira, 240, 1997.
[5] Eyholzer, K., W. Kuhlmann, and T. Münger, Wirtschaftlichkeitsaspekte
different information systems can be provided and integrated eines partnerschaftlichen Lieferantenmanagements. HMD - Praxis der
as services, increasing systems functionalities and process Wirtschafts-informatik, 39(228): p. 66-76, 2002
compliance. [6] Beil, D., and Wein, L., An Inverse-Optimization-Based Auction
Mr. Shai Agassi, the CEO from SAP, goes even further, Mechanism to Support a Multi-Atribute RFQ Process, Management
Science, 49, 1529-1545, 2003.
and related as his and SAP’s vision, the deployment of an [7] Nenninger, M., and Lawrenz, O., B2B-Erfolg durch eMarkets und
unique and integrated business process platform in which the eProcurement. Strategien und Konzepte, Systeme und Architekturen,
entire supply chain, from the purchase to sales, will take place. Erfahrungen und Best Practice, Verlag Vieweg, 2002.
“The days of buying point products are long behind us. [8] ComputerWire: Executive Briefing: Supplier Relationship Management
– A Relationship Too Far? 2002, http://bpem.fzi.de, download
Five years from now, customers will only buy suites. You 19.01.2007.
won’t purchase individual point products such as ERP, CRM, [9] Pepels, W., e-Business-Anwendungen in der Betriebswirtchaft, Verlag
Supply Chain Management or HR applications that will ship Neue Wirtschafts-Briefe GmbH, Herne/Berlin, 2002.
to you as separate entities and that will end up as a collection [10] Gronau, N.: Enterprise Resource Planning und Supply Chain
Management – Architektur und Funktionen. Oldenburg Verlag,
of services that you need to manage. Customers are looking to München, 2004.
drive a higher level of value out of their industry flavored [11] Maier, K., Pützfeld, K., Der e-Business Spezialist Planung und
enterprise software solutions and they are doing this through Praktische Umsetzung von e-Business-Anwendungen, Addison-Wesley
deploying application suites.” [29]. Verlag, 2002
[12] Holland, C.P. and Light, B. A critical success factors model for ERP
implementation. IEEE Software, 16, 3, pp. 30−36, 1999.
V. CONCLUSION [13] Fraunhofer IAO, Marktübersicht Portalsoftware 2005, Fraunhofer IRB
Verlag, Stuttgart, 2005.
The SRM market is constantly growing. The ERP providers
[14] European Commission Electronic Commerce Team, B2B e-
e.g. SAP and Oracle, but also the "Best-of-Breed" vendors e.g. Marketplaces, June, 2002.
Ariba, are strongly developing their functionalities in order to [15] Gartner: B2B Buy-Side E-Procurement (Application Components)
be able to survive in this competitive market. Internet Commerce. Gartner Research, 2004.
Especially in the area of strategic sourcing much investment [16] Bartels, A.: Forrester WaveTM: eProcurement Solutions. Forrester
Research, 2005.
has been done with the purpose to improve or reinforce the [17] AberdeenGroup, The Procurement Benchmark Report: e-Procurement
current developments in the area of contract management, 2.0, August, 2006.
service procurement, spend and supplier intelligence and [18] Abery, J.; van Bokhost, G.; Giling, N.; Glindemann, C.; van der Kolk,
process integration, among others. R.; Noorlander, R.; Odijk, M.; Osborne, A.; Putters, M.; Schoultz, K.;
van Wilgen, P.: Supplier Relationship Management (SRM) 2005-2006 –
On the other side, in the area of e-Procurement, the growth A report for senior management in procurement optimization. Capgemini
potential seems to be exhausted, and the growth expectations Niederland B.V., 2005.
relatively low, when compared with the booming e-Sourcing [19] Minahan, T. A.: Center-Led Procurement – Organizing Resources and
segment of the market. Technology for Sustained Supply Value. AberdeenGroup, 2005.
[20] Van Vliet, M., Supplier Relationship Management Soluctions: Expected
Other important trend in the SRM market is the application Value, Capgemini Consulting, September, 2006.
of business process outsourcing and SRM On Demand, which [21] Aberdeen Group, The Advanced Sourcing & Negotiation Benchmark
gives software vendors the possibility to offer their systems as Report: The art & science of the deal, January, 2007
services. First to middle size enterprises, who cannot afford [22] Kyte, A.; Eschinger, C.; White, A.: Magic Quadrant for Strategic
Sourcing Applications, 2004. Gartner Research, 2005.
the acquisition of license software, and second to big [23] BME Verband - Bundesverband Materialwirtschaft, Einkauf und
organizations, who are looking for innovative products and Logistik e. V. : BMEcat – Entstehung und Ziele. 2006,
skills without the need to invest huge amount of capital in http://portal.bme.de, download 10.12.2006.
implementation and roll out projects. [24] Gartner, User Survey Analysis: Procurement BPO, North America and
Western Europe, November, 2006.
The ERP vendors have still the advantage of their vast [25] Pang, A.: Worldwide SRM Applications 2005-2009 Forecast and 2002-
customer base, and the facility to integrate their SRM modules 2004 Vendor Shares: Contract Management, Core Purchasing, Strategic
with their other systems. However, the "Best-of-Breed" Sourcing, and Supplier Collaboration Segments. IDC Research, 2005.
providers showed better performance in specific [26] Cecere, L.; D’Aquila, M.; Carter, K.: The Procurement and Sourcing
Applications Report, 2004-2009. AMR Research, 2005.
functionalities, according to most market researches. Thus, the

109
 World Academy of Science, Engineering and Technology 28 2007

[27] Hornung, J.; Neumann, K.: SRM: Den Einkauf strategisch betrachten –
Systeme für das Supplier-Relationship-Management können weit mehr,
als operative Prozesse zu automatisieren. Computerwoche, Heftnummer
1/2006, S. 24, 2006.
[28] Campelo, E., Stucky, W., New Use Scenarios For e-Catalog Systems: A
Cross-Company Approach, In Proceedings of the 6th International
Business Information Management Association (IBIMA) Conference,
pp. 207-212. Bonn, Germany, June 2006.
[29] SAP AG – Press Release: SAP Executive Shai Agassi Identifies Five
Key Software Trends for Companies to Watch. 2006,
http://www.sap.com, download 12.03.07.

110