Enterprise Resource Planning: Bridging the Gap between Product Vision and Execution

Such acquisitions are unlikely to stop as Infor continues to look for solutions that would fill out its current product suites (e.g., a transportation management system [TMS], plant management/enterprise asset management [EAM], product configurator, etc.). The skill and technology set from acquisitions could be adapted by Infor to meet specific industry requirements and be marketed to the diverse installed base. They can also be adapted and sold outside the install base as standalone, best-of-breed solutions.

According to its upper management, Infor's acquisitions can be divided into two categories: value driven acquisitions and growth acquisitions, and all were conducted after thorough, metric-based evaluations. This strategy appears to be working, even when compared to the strategies of Infor's awesome competitors like SAP and Oracle. Infor cites its organic ("same store") growth to be seven percent over the past fiscal year, driven by over 460 brand new customers (not existing customers or divisions of existing companies that are already customers that buy additional modules or Infor solutions) in the last fiscal year. These have been, in great part, driven by the sales of some "super breed" products, especially SupplyWEB. The maintenance retention has been between 95�98 percent, without any maintenance price increases (which is typical after acquisitions), and includes winning back some departed customers, but excludes any brand new business.

Why has Infor been successful at tacitly nurturing and growing acquired companies when many more noisy competitors have not? Its vertical focus makes solutions functionally richer than even those of its larger competitors; it is financially stable and has a global presence; and it does not rely on large deals to close the quarter (Infor's average deal is reportedly around $300,000 USD). However, there is another reason. It puts continuous investment in research and development (R&D). Eighteen percent of revenues goes into R&D, which is high, given the industry standard is 14 percent or so. Infor also willingly supports and modernizes products on multiple platforms. While the vendor has been converging vertical solutions on one source code written in either Java 2 Enterprise Edition (J2EE) or Microsoft .NET environment, customers will not have to go through a costly and painful de-implement to re-implement upgrade process.

So, how does Infor plan to quickly converge innovative vertical solutions while protecting manageable, upgrade paths without forcibly marching customers towards change? To meet its goal, Infor has created its own internal development and integration environment, codenamed Corestone. Cornerstone has all but entrenched the following processes: drive enhancements by vertical differentiation, embrace leading technology platforms (i.e., J2EE and .NET) that leverage open standards, and embark on product development will use service oriented architecture (SOA) principles. Third-party applications might be used for non-core applications or functionality.

The deliverables of Corestone will eventually include a universal client framework that will provide a common user interface (UI), navigation method, and messaging standards for all Infor products. The environment will also provide unified development standards for more efficient global development teams and for database independence of all future products; enterprise java beans (EJB) will not be used. Stored procedures written in structured query language (SQL), which are operations that are stored with the database server, will not be used either. Instead Infor will move business logic to an application layer of its products, opening up the use of Web services, and allowing clients of all types to consume business logic, as needed.

Corestone will also create a library of re-useable utility components, such as single sign-on, authentication, licensing, printing, workflow management, reporting, enterprise service bus (ESB), etc. Rapid application development will be enabled through the development environment and UI design tool. Also, the Infor Business Integration Server (IBIS) platform will cater for eased integration with other Infor and third-party applications and services. Looking at the Corestone assembly environment, the top layer will consist of a raft of supported clients, such as Microsoft, Linux, and Macintosh smart clients. Microsoft IE 6.0 (and later), Mozilla Firefox rich browsers, and any commercially available regular browser will also be supported. Telnet and HyperText Transfer Protocol (HTTP) will represent mobile clients.

On the other hand, all brand new solutions, the so-called Corestone-enabled applications, are being written in J2EE or .NET. Therefore, although Corestone may have many similarities with the SAP NetWeaver or Oracle Fusion platforms. The major difference is that these appli-structure platforms that are being developed by SAP, Oracle, IBM, Fujitsu, and Microsoft are, after all, proprietary, either in terms of database, and operating system (OS), or application server or both. Thus, Infor's technology roadmap will allow applications to be built in primordial third generation language (3GL) languages and outdated environments like RPG or Computer Associates' OpenRoad to use new services and functionality written in J2EE or .NET. Also, the SOA-enablement of business logic should allow existing business logic to be reused across multiple applications.

The use of Open Applications Group Integration Specifications (OAGIS) and e-business extensible markup language (ebXML) standards allows Infor to integrate modules and functionality into existing applications, assembling the best solution for its customers. Then, the UI integration will bring a common look-and-feel to all diverse applications, while single sign-on and authorization model should support tighter integration to other applications and common navigation between applications.

Further, CoreApps will eventually simplify integration and support multi-company installation strategies via the CoreITEM (for the item master and product data management [PDM] data provision) and CoreCV (for the customer and vendor master data provision). Last but not least, like in case of Lawson Landmark, Infor's applications will go through regular code regeneration for reasons of continuous code improvement. Infor will focus on further breaking down existing applications into more granular services and to write new applications and modules using SOA, whereby existing services will be occasionally replaced by new ones.

An example of Infor's work underdevelopment is an iSeries-based automotive enterprise resource planning (ERP) application called XPPS (coming from former Brain). It is based on the RPG language and on IBM DB2 database, and has received a new Corestone Smart client interface and Corestone-enabled functional extensions, like manufacturing execution system (MES) functionality and cross-divisional Infor Global Financials (coming from Varial Software). Many other similar products based on iSeries and pre-.NET Microsoft technologies are to follow suit. The pace at which Corestone will be applied to Infor product lines will be determined by individual Infor business units, which have their own product development, product management, and development organization. It will also have the responsibility to drive industry-specific functionality into products.

Managing Your Supply Chain Using Microsoft Navision

The starting point of the book Managing Your Supply Chain Using Microsoft Navision is that supply chain management requires effective use of an integrated enterprise resource planning (ERP) system. Its central theme focuses on using Microsoft Navision for managing supply chain activities in manufacturers and distributors. Its target audience includes those individuals implementing or considering Microsoft Navision as their ERP system. The book addresses an overall understanding of how the system fits together to run a business, expressed in generally accepted terminology. This mental framework—in combination with hands-on experience and training courseware—can accelerate the learning process, and an overall understanding leads to more effective system usage.

Usage of any ERP system—including Microsoft Navision—is shaped by many design factors that make it easier (or harder) to learn and use. For example, consistency and symmetry in the user interface make an ERP system easier to learn and use. The same holds true for the consistency and symmetry in standardized functionality across integrated applications, and in extended functionality stemming from customizations and independently developed software. System functionality and e-commerce integration also shape usage in different manufacturing and distribution environments.

Many of the design factors related to Microsoft Navision have been covered in previous chapters. This final chapter summarizes the design factors shaping system usage and hopefully provides the capstone of an overall understanding about how the system fits together to run manufacturing and distribution businesses. The design factors are segmented into those related to the user interface, customization capabilities, and system usage in manufacturing and distribution environments. Additional design factors include those related to integration with e-commerce, relationship management, service management, and accounting applications.

The user interface within Microsoft Navision provides consistency across all windows that assists ease-of-learning and ease-of-use. In addition, a graphical user interface supports user-defined work flows so that a user can select the desired step and access the relevant window. A few illustrations are provided below about the basic types of windows comprising the user interface.

Card versus List Format. Records can be viewed individually in card format or all together in list format, where the list format works very much like a spreadsheet. Customer master data, for example, can be viewed and maintained in card format for a single customer or viewed in list format for all customers. Both formats support access to related information and forward/backward browsing. The card format often segments data into tabs, while records in a list format can be copied and pasted into a spreadsheet.

Some windows with header and line item information employ a combination of card format and list format. A sales order, for example, consists of header information in card format and line items in list format. The header information for all sales orders can be viewed in list format.

Find Capabilities. Find capabilities can be based on any string of embedded text in a record identifier (such as customer number) or its attributes.

Filtering and Sorting. A filter limits the displayed records based on values in one or more fields, with sorting based on any field. The user can browse forward and backward through the subset. Filtering logic includes equal to, different from, greater than, less than, intervals, and wild cards.

Drill-Down Analysis. The system supports several drill-down approaches, such as drill-down to the source transactions and drill-down to the details comprising a summarized value.

Customizations range from the simple to the complex. Complex customizations typically entail significant changes to system functionality and logic. Simple customizations typically involve minor changes to the user interface and reports, and do not impact system logic. Several tools support simple customizations as illustrated below.

Customizing Window Layout for the List Format. The list format allows an end user to tailor window layout by selectively hiding, showing, and sorting fields via drag-and-drop. This provides a simple approach to customizing window layout and the system remembers each end user's preferences. In addition, an end user can view all available fields (and their values) in the table related to a record.

Customizing Window Layout for the Card Format. The card format can be changed with an easy-to-use forms designer, such as changes to field labels, to show or hide fields, and to rearrange fields on tabs.

Customizing Reports and Documents. The format and content of reports and documents (such as an invoice) can be customized using a report designer tool. The tool also supports export/import for exchanging spreadsheet data. Customizing via Additional Fields. New fields can be added to tables with immediate visibility in list format windows and availability for customizing card formats and reports.

The object-oriented design also supports more complex customizations. Numerous case studies throughout the book illustrated some of these customizations.

Primary Engine for Coordinating Supply Chain Activities. Planning calculations synchronize supplies to meet demands and generate suggested action messages on worksheets. Replenishment logic within the planning calculations includes time-phased order point, DRP, and MRP logic.

Symmetry of Sales and Purchasing Functionality. Sales and purchasing both handle documents for quotes, blanket orders, orders, invoices, returns and credit memos, with parallel approaches for handling cross-reference identifiers, prices and discounts, special charges, and order-related text. Symmetry is also apparent in the definition of customer and vendor information, and the handling of special orders and drop shipments.

Variations in Sales. Sales order line items can identify material items (including special orders, drop shipments, and kits of components) as well as resource time, special charges, and text. Pricing and discounting schemes can reflect product and customer groups, quantity breakpoints and date effectivity, and discounts based on total order value. Sales can be forecasted to drive purchasing requirements.

Symmetry of Warehouse Functionality for Inbound and Outbound Shipments. The same functionality for handling outbound shipments applies to sales orders, transfer orders, and returns to vendor. Similar functionality for handling inbound shipments applies to purchase orders, transfer orders, and customer returns.

Variations in Warehousing. Shipping activities can focus on individual orders or a pick document, while receiving activities can focus on individual orders or a receipt document and an optional put-away document. Put-away suggestions can optionally account for bin location considerations, such as location preferences and capacity constraints. Movement within a warehouse can reflect bin replenishment policies, such as replenishing bins from a bulk storage area.

Modeling Variations in Multi-Site Operations. The system supports different types of multi-site operations, including autonomous sites within a company and a distribution network with transfers between locations. Costs and replenishment methods can be defined by item and location, where the replenishment method can identify the preferred ship-from location (and transportation lead time considerations) to model a distribution network. Transfer orders coordinate movement between locations. Sales order line items indicate the ship-from location, while purchase order line items indicate the ship-to location.

Are Spend Management (or SRM) Apps Suited for the Mid-market? – Part 1

Universal Supply (Chain) Issues

I could think of at least the following five key issues and challenges that in turn lead to tremendous opportunities to save money, time, and bolster the bottom line of companies of all size.

Issue #1 is excessive spending for direct and indirect goods and service
—i.e., more than a company should for it needs. The opportunity here is to reduce the company’s spending by minimizing maverick purchasing practices, reducing transaction costs, and leveraging the aggregated (collective) purchasing power of the enterprise to negotiate more favorable pricing, service, and contractual terms and conditions.

Issue #2 is a lack of visibility and accountability. Many companies are not exactly sure what they are currently spending their money on. The pertinent historical and snapshot data is lacking and is likely inaccessible. Questions like, “How much are we spending? With what suppliers? On what categories? Who is spending it? How long does the approval take? Are we within the budget? What suppliers are (or are not) fulfilling orders on time? Should we rationalize our supplier base? Are there spikes or trends in our spending patterns that require action?” and so on require constantly changing answers.

The opportunity here is for all managers and executives to monitor spending (via personalized interactive analytics and alert messages) by category, location, cost center, department, project, you name it. These metrics should be known/viewed as transactions are happening, instead of only after they are booked to the general ledger (GL).

One way to solve this conundrum could be via procurement data marts that provide prepackaged spend analysis over a few dozens metrics and dimensions for fast answers to the above questions. These answers should be based on fresh (real-time, or close to real-time) data rather than on “rearview mirror.” This hindsight speed-of-thought spend analysis should measure and optimize savings via packaged buyer analytics, key performance indicators (KPIs), and proactive control and supplier collaboration.

Issue #3 is that most companies have a legacy of too many vendors that supply disparate operations and manual approval processes that make it impossible to exercise reasonable control. The opportunity here is to have an overarching system that enforces controls, drives requisitioning and purchasing clerks to preferred suppliers and items, and makes an approval workflow a snap. Essentially, the idea is to make it patently easy for everyone to do the right thing consistently time and again.

Issue #4 is that many existing procurement and payment processes are labor-intensive and fraught with errors and rework. As a result, too many people are spending too much time on clerical tasks. The opportunity here is to lift that burden and focus the company’s human resources (i.e., requisitioners, managers, and purchasing professionals) on more strategic activities.

Finally, Issue #5 is fragmented enterprise systems (and islands of information), which are difficult to navigate and almost always require duplicate data entry. Astute integration technologies should solve this problem without costly IT input, even if the enterprise is integrating diverse solutions (i.e., procurement and sourcing with different front-office and back-office solutions). There is often a need to integrate procurement to accounts payable (A/P), GL, and inventory management systems, whereas both procurement and sourcing systems often have to be linked to supplier catalogs, Web sites, and sales order management systems.

SRM or Spend Management?

As said even back in 2003 in a TEC article, “The Hidden Gems of the Enterprise Application Space,” the supplier relationship management (SRM) software category has been important and valuable for companies of all sizes. The SRM market is evolving due to related emerging areas such as e-procurement, strategic sourcing, spend analysis, etc.

For example, the payback and value of running a sourcing event before awarding a contract is a given, and we can see companies like Ariba and Emptoris doing that well these days. However, they are selling to the high-end market, against SAP and Oracle enterprise resource planning (ERP) installations. It is interesting that the SRM moniker, which really revolved around the supplier collaboration theme, has lately lost some of its popularity (possibly after SAP and Oracle commandeered the term within their respective SAP SRM and Oracle PeopleSoft SRM suites).

Ariba came out in the early 2000s with the “spend management” moniker based on how procurement always talks about spend. It was a whole “find it, get it, keep it” campaign. In addition to procurement and sourcing, a full-fledged spend management or SRM suite typically includes contract (lifecycle) management software and business performance management (BPM) analytic capabilities (e.g., dashboards, scorecards, etc.).

Ariba and some procurement-oriented ERP vendors argue that spend management means transactions too, such as electronic invoice presentment and payment (EIPP). Supply chain management (SCM)-oriented vendors might also argue that it touches on supplier connectivity and supply chain visibility (SCV) or supply chain event management (SCEM) as well.

For example, ERP providers are seeing a strong push to consolidate and streamline A/P as the tail end of the transactional process. Thus, some vendors offer automated A/P matching (“hands-free A/P”) as a way to accomplish consolidation by matching electronic invoices to electronic receipts and generating payments for matches within preset tolerance limits.

I feel strongly, though, that effective spend management must also cover spending that occurs outside of e-procurement. Face it, no company has ever (or will ever) put all of its spend under management. That’s why it is critical to gather those expenditures that occur outside of procurement (including even financial books showing expenses transferred from one account to another), and to show them to requisitioners and approvers during the requisition process.

Some ERP vendors call that capability “budget and commitment checking” and do it very well because they have comprehensive integration to the back-office applications, including A/P, purchasing, and GL. Without that, users, vendors, and pundits just keep harping on getting 100 percent of spend under total control, without ever getting there in real life.

What About Small to Medium Enterprises (SMEs)?

A smart person once said that a major difference between large companies and SMEs is that in a small company a single person has to wear several hats (and perform a number of tasks). Otherwise, large and small companies undergo many similar business processes.

To that end, there are extremely few mid-market companies that have a CPO per se. More likely, one will run into vice presidents (VPs) of purchasing, or sometimes just directors. Some mid-market companies don’t even have a full-time buying staff and clerks; there, purchasing is managed within departments like IT and facilities.

Regarding “spend management” versus “SRM”–it’s as much about marketing as it is about solutions per se. As said earlier on, Ariba (and some bloggers and pundits like Jason Busch) started chanting the “spend management” mantra around 2002 or 2003 to try to establish a footprint that justified a best-of-breed versus enterprise suite investment.

But “SRM” and “spend management” are pretty generic phrases that practitioners toss around in various forms veritably interchangeably. Truth be told, the mid-market never really caught on to the term SRM, and some incumbent vendors have responded by simply talking about their individual SRM solutions (for procurement, sourcing, and spend analysis).

Even the terms “sourcing” and “strategic sourcing”
—like “SRM” or “spend management”
—fail to resonate with the majority of mid-market companies. For sure, they have buyers and they source stuff, but as a software application, it’s a term that just doesn’t seem to gel.

Now, if Tier One SRM vendors like Ariba, Emptoris, SAP, or Oracle choose to dumb-down and reprice their SRM offerings for the mid-market, they are going to have to do something extra to reduce the operational costs of the model too. Namely, having a stable of savvy category buyers and sourcing experts (consultants) available at all times for all customers is not cheap (and Ariba might heavy-heartedly admit that).

As pointed out earlier, in the mid-market there are many companies that don’t have full-time buyers at all; they get along fine without them and don’t see much benefit in paying for them as contractors. That will be a hard mentality to get over.

Software as a Service (SaaS) and business process outsourcing (BPO) arrangements might be attractive for some SMEs, but certainly not for all (and maybe not even for most). Some of them will not go for such offerings at any price, at least not in the near future. Namely, there are still too many risks (whether real or perceived) for them to wrap their heads around.

Are Spend Management (or SRM) Apps Suited for the Mid-market

Generally speaking, sourcing is the process of identifying a company that provides needed goods or services. APICS Dictionary further defines strategic sourcing as “The development and management of supplier relationships to acquire goods and services in a way that aids in achieving the immediate needs of a business. It is entirely aligned with the sourcing portion of managing the procurement process.”

In other words, strategic sourcing is the continuous evaluation of preferred suppliers, goods, services, price, and non-price attributes to achieve the optimal mix of all parameters. The group of (preferably electronic) “request for” documents collectively called “RFx,” which entails requests for quotation (RFQs), requests for proposal (RFPs), and requests for information (RFIs), facilitates the supplier evaluation efforts.

Actual buying or selling (sourcing) takes place via a number of auction events that will be described shortly. Purchases can be direct or indirect, depending on whether they entail direct or indirect materials.

Direct materials are materials that become part of the final product in measurable quantities. These are raw materials for manufacturers, and finished goods and components for distributors. Conversely, indirect materials are materials used in manufacturing that are not normally charged to finished production, such as cutting and lubricating oils, machine repair parts, glue, or tape.

Indirect materials also include maintenance, repair, and operations (MRO) supplies, or items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations. Office supplies, computer equipment, professional and temporary services, catering services, facilities services, travel, internal suppliers (e.g., computer, telephone), and so on are other examples of indirect purchases.

There is a third kind of sourcing/purchase, spot purchase, which is a purchase made for standard off-the-shelf material or equipment, on a one-time basis (”on the spot”). Spot purchase could apply to non-catalog items requisitioned through the procurement module and also to single sourcing events for large purchases that warrant competitive bidding. In the first case, the sourcing module logically must be integrated with the procurement counterpart.

The sourcing process starts from an actual requisition for a certain material or service that follows the creation and posting of an event, bidding, evaluation of bids, selection, and approval of the winner, and transmitting the actual purchase order (PO) or contract to the winning supplier.

(A Plethora of) Sourcing Auctions/Events

In sourcing, one can distinguish between two main categories of events (auctions): forward events and reverse events. A forward event, also called a seller-centric event (because it is posted by a seller), offers products or services for sale. A reverse event, or a buyer-centric event, is a request to buy products or services from suppliers.

Within these two types of events, commercially available sourcing products typically support the following event mechanisms (in addition to an event pack, which is a group of individual events):

* Posted offer (forward “for sale”) and posted bid (reverse “wanted to buy”) events are similar to advertisements in the classified section of a newspaper, with the discretion of the seller to sell (or not) to whomever they see fit.
* An English event is an open ascending-price event; as time goes on, the price is bid up by buyers who are willing to pay more than other bidders. In contrast, a reverse English event is a descending price event because the price is bid down by sellers willing to sell for a lower price than a previous bidder.
* A Dutch event is an open descending-price event, while a reverse Dutch event is an ascending-price event. In a forward Dutch event, a seller posts a description of the item to sell, along with a starting price (traditionally set above the item’s true value) and the minimum acceptable price, which is the lowest price the seller is willing to sell the item for. The price continues to decrease by a seller-specified amount at seller-specified intervals until either a buyer stops the event by bidding at the currently displayed price, or the price drops below the minimum acceptable price, in which case there is no winner.
* A uniform price auction is a mechanism used to sell a fixed quantity of identical items, and derives its name from the fact that all event winners pay the same amount, but the highest bidder is eligible for his/her desired quantity (and so on until everything is sold). The price is dependent on the least best bid amount up to the total quantity of items available. If the event owner has specified a reservation price, then the amount paid depends upon whether the nth highest bid (where n = the number of units for sale) is above the reservation price and whether the seller uses the all-or-none option.
* A discriminatory price auction is quite similar to the uniform price event, except that all winners pay exactly what they bid. Higher bidders buy the first available items.
* A first-price sealed-bid (FPSB) auction is an event (either forward or reverse) where the bids (or quotations in reverse events) are hidden from everyone during the bidding process (until the event expires).
* A Vickrey, also called a second-price sealed-bid event, is a forward event that is operationally equivalent to the sealed-bid event except that instead of the highest bidder paying what he/she actually bid, he/she pays the second highest bidder’s price (unless there is only one bidder, in which case he/she pays the reservation price). This sort of event is a demand-revealing event because it entices bidders to bid what they value the item to be worth.
* Weighted request for bid (RFB) sourcing allows the creation of reverse requests for RFQs and forward RFBs with user-defined weighted attributes. These features could be special qualities or factors that could drive the selection of a buyer or seller by means other than price alone. Some examples of attributes are proximity of manufacturer, lead time, color, ISO compliance, delivery speed, options, manufacturing and engineering tolerances, etc. What this kind of sourcing auction does, in effect, is give the event owner a way to ask questions of bidders and have those answers electronically and impartially evaluated.
* A batch event is one in which a seller posts a quantity of identical items with a pricing step function. As the number of items that have been bid on increases, the individual item price drops as a function of the quantity. While the actual steps are not shown on the bidding page, event owners have the option of revealing their price function in the event’s details field.
* Dynamic events are an enhanced version (and combination) of the above-mentioned English and weighted-attribute events. Like an English event, a dynamic ascending event is an ascending price event because as time goes on, the price is bid up by buyers who are willing to pay more than other bidders. Similarly, like a reverse English event a dynamic descending event is a descending price event because as time goes on, the price is reduced by sellers who are willing to sell an item for less than other bidders. But also like the weighted-attribute event, dynamic events allow for the creation of user-defined weighted attributes (special qualities or factors that can drive the selection of a buyer or seller by means other than price alone).
* Single-price RFBs and single-price RFQs are respectively forward and reverse events that use only one predefined weighted attribute of price.
* Finally, sourcing RFB and sourcing RFQ events are those in which sourcing agents are called upon to assist in the actual purchase or sale, or to provide defining information. Agents can, in turn, create another event from the original one as needed. Frequently, companies use this event type when they are unsure about exactly what it is they are buying or selling and they need some assistance defining it. In a manner of speaking, TEC is sn example of an agent helping companies source enterprise applications.

Be There or Be Square? David and Goliath Team on bCentral Auction Site

FairMarketSM, Inc. (NASDAQ: FAIM proposed) and Microsoft, Inc (NASDAQ: MSFT) announced the addition of auctions to the Microsoft bCentral portal for small and growing businesses. Product categories range from Business Machines to Uniforms/Business Dress. Auctions are only one aspect of bCentral, which also provides information to small businesses on subjects ranging from how to build a web site to how to recruit employees. The auction capability is linked to other Microsoft and FairMarket auction networks.

Auction capabilities are a small addition to bCentral. The link is one of sixteen on a two-inch by four-inch section of the bCentral home page. While the categories themselves have a small business orientation, a quick trip through some listings suggests that the auction list has been seeded with a variety of items from other auction sites. Of course the beauty of an auction site is that many unlikely goods will find the person or company who needs them.

At present, however, we think there are too few items of real value to small businesses among the hodgepodge of games and CD's whose photos are stamped "Bundled Software Must Not Be Sold Separately From Approved Hardware." We believe that this kind of content is not likely to endear the site to potential small business users.

This may be a startup phenomenon that will disappear as the site gets a more focused population of goods and services. However, if the product listing does not focus naturally, it would be quite labor-intensive, and a difficult public relations problem, to try to monitor it to focus the content manually, even with automatic aids.

While a drop in the bucket for Microsoft, the announcement may be quite important for FairMarket. Currently preparing for a public offering, any mention of the company's name in the news is good, especially when that name is linked with part owner Microsoft. (Microsoft owns 21 percent of Fair Market, of which 17 percent is in warrants.) However, in the long run FairMarket needs transaction revenue rather than name recognition, thus involvement with any site that does not efficiently convert visitors to buyers can be doubly costly. The obvious cost is the opportunity cost of devoting resources to a low-value site.

The subtler cost is in the fine print of FairMarket's contracts with Microsoft (and with Excite, Inc, a 15% owner). These call for sharing of transaction revenue, with enforced minimums based on Internet traffic. That is, if Microsoft sends a certain number of visitors to FairMarket then, regardless of whether they generate transaction fees, FairMarket will owe Microsoft a minimum transaction fee. In total, these fees - taking both Microsoft and Excite into account - range from approximately $5.8 million in 2000 to approximately $28.4 million in 2004.

Given that FairMarket's revenues in the first three quarters of calendar year 1999 were $900,000 and essentially zero for the preceding two years, these agreements do represent some real risk. Note that for Accounting reasons FairMarket will not recognize transaction revenue generated from visitors sent from Excite or Microsoft until the minimums have been paid or the traffic levels have been unable to meet the trigger points. This makes the first few quarters especially hazardous. If FairMarket doesn't generate the transaction revenue from Microsoft and Excite very early in the year, they will be in an uncertain position - the kind that Wall Street analysts and investors particularly dislike.

Oh, Right. E-commerce is About Buying and Selling, Isn't It

FreeMarkets, Inc. (NASDAQ: FMKT) runs a marketplace that enables large competitive auctions for the purchase of industrial parts and raw materials. Unlike most digital market makers whose goal is to create completely digital marketplaces, FreeMarkets provides value by combining technology with labor-intensive services.

When buying a thousand rolls of standard sized paper towels it is efficient to look in a catalog and choose vendors based on price, delivery times, and reputation. When buying millions of cubic feet of natural gas or a family of PC boards, a different approach is definitely called for.

FreeMarkets works with purchasers to help them craft detailed product specifications. These requests are prepared by specialists in the product, materials, or service being acquired. Preparation of a specification might take between four and ten weeks.FreeMarkets also helps buyers identify potential bidders on the contract. FreeMarkets then works with the suppliers to train them in the use of the system. The bidding takes place in an electronic market that shows all suppliers the current bids in real time. The marketplace supports multiple currencies and a host of specialized features. Buyers typically save between 2% and 25% on a single acquisition.

The Postal Service is the nation's largest civilian employer, largest shipper, and tenth largest commercial enterprise. Its complex contracts for shipping services, equipment and repair, and raw materials make it a natural for the specialized procurement services that FreeMarkets provides. FreeMarkets recently signed a partnership agreement with American Management Systems, Inc. (NASDAQ: AMSY), which will bring FreeMarkets other public sector clients.

At present FreeMarkets has little overlap with other marketplaces, such as those being created by Commerce One or Ariba. As digital marketplaces become more crucial to the supply chain - as is beginning to happen in the automotive industry and ether verticals - these marketplaces will undoubtedly begin to encroach somewhat on the lower end of FreeMarkets' space. However, it is not efficient for such markets to attempt to develop the depth of product specific knowledge that FreeMarkets has in 70 different verticals.

Similarly, while FreeMarkets could use its position in these verticals to build digital exchanges for more routine procurements, there is no compelling reason for them to do so. In the increasingly competitive world of electronic purchasing FreeMarkets has the enviable position of being able to make money while sitting well above the fray.

VerticalNet was an early entrant into the vertical B2B market business. It entered the space when digital markets were still in the future and set up as a content provider, with dozens of individual vertical sites. However, its "marketplaces" tend to be based on fairly simple models, while other verticals have been offering much more robust digital marketplaces. Also, the leading life sciences vertical, Chemdex, recently announced that it would rename itself as Ventro and devote itself to launching new verticals in a variety of industries, which was a clear threat to VerticalNet.

Once VerticalNet has successfully integrated Tradeum's digital marketplaces their vertical offerings will be much bigger draws. The question is whether they can make the change before the Chemdex folk launch their new offerings and capture significant market share.

For a Million Gallons of Glue Find a Marketplace on Steroids

FreeMarkets, Inc. (NASDAQ: FMKT) runs a marketplace that enables large competitive auctions for the purchase of industrial parts and raw materials. Unlike most digital market makers whose goal is to create completely digital marketplaces, FreeMarkets provides value by combining technology with labor-intensive services.

When buying a thousand rolls of standard sized paper towels it is efficient to look in a catalog and choose vendors based on price, delivery times, and reputation. When buying millions of cubic feet of natural gas or a family of PC boards, a different approach is definitely called for.

FreeMarkets works with purchasers to help them craft detailed product specifications. These requests are prepared by specialists in the product, materials, or service being acquired. Preparation of a specification might take between four and ten weeks.FreeMarkets also helps buyers identify potential bidders on the contract. FreeMarkets then works with the suppliers to train them in the use of the system. The bidding takes place in an electronic market that shows all suppliers the current bids in real time. The marketplace supports multiple currencies and a host of specialized features. Buyers typically save between 2% and 25% on a single acquisition.

The Postal Service is the nation's largest civilian employer, largest shipper, and tenth largest commercial enterprise. Its complex contracts for shipping services, equipment and repair, and raw materials make it a natural for the specialized procurement services that FreeMarkets provides. FreeMarkets recently signed a partnership agreement with American Management Systems, Inc. (NASDAQ: AMSY), which will bring FreeMarkets other public sector clients.

At present FreeMarkets has little overlap with other marketplaces, such as those being created by Commerce One or Ariba. As digital marketplaces become more crucial to the supply chain - as is beginning to happen in the automotive industry and ether verticals - these marketplaces will undoubtedly begin to encroach somewhat on the lower end of FreeMarkets' space. However, it is not efficient for such markets to attempt to develop the depth of product specific knowledge that FreeMarkets has in 70 different verticals.

Similarly, while FreeMarkets could use its position in these verticals to build digital exchanges for more routine procurements, there is no compelling reason for them to do so. In the increasingly competitive world of electronic purchasing FreeMarkets has the enviable position of being able to make money while sitting well above the fray.

ANALYSIS: Vendor Strengths

Remedy has built all of its products on its AR System, and has wisely taken the time to integrate each new acquired product with it. The payoff is that different products work well together and that cross-selling and repeat selling have a simple story to support them.

Remedy also has a massive installed base utilizing various components of the AR system. This gives a much lower cost of sale, as it can sell add on products very easily.

Remedy is also blessed with cash and earnings. It has been profitable since 1995, and the profits have essentially been increasing each year (with the exception that 1998's profits were smaller than those in 1997).

Finally, Remedy has a strong international presence. With customers in 70 countries, 34% of the company's revenues come from outside the United States. These sales are primarily through channel partners, and can therefore grow without substantial investment by Remedy in sales force or post-sales support.

Remedy has a very broad product line and, as yet, not much visibility as an "e" technology company. For example, while they are well known as a traditional help desk vendor, they have not yet made themselves well known in the eCRM area.

With its acquisition of Axitive, Remedy should have a good story to tell about personalization in its eCRM product and elsewhere. There are currently many vendors in that space, and the competition for mindshare is intense. Mindshare affects both future sales and future partnerships. (Not, perhaps, as much as an established customer base of 4800 customers does.)

Still, we know that Remedy is not relying solely on its established base for new product sales, and should not hide its bushel under a flower. If the Axitive product is the equal of other personalization products, then Remedy should be showing up at more than just the traditional CRM conventions. Membership in the Personalization Consortium would be a good step.

Also, while Remedy does have its share of dot-com customers, they are not primarily technology drivers. The current customers will help Remedy stay abreast of emerging business requirements, but the company should also court some companies using bleeding edge technologies. These companies are going to remain the drivers of technologies in many of Remedy's areas, because they have the clearest vision of what can be done on the Web and the greatest sense of urgency about making it happen. Remedy needs more experience playing in that sand box.

We prefer software companies to keep their focus on licenses. Looking at the balance between product and service revenues, as shown in Figure 5, we see that the ratio has been edging toward services. A different measure reinforces this: while total revenues grew at 45% from 1998 to 1999, support revenues grew at 55%.

If this were just a one-year movement it could be attributed to new products or to the Guaranteed@Remedy program. But the ratio has been moving slightly toward services for some time. We want to point out that the ratios are within the bounds of what financial analysts consider healthy, and that we don't necessarily expect the ratio to go beyond those bounds. We simply want to point out that Remedy needs to watch this. We're all in favor of good service and support, but Remedy can find other ways to deliver them to their customers.

Moving the mix toward partners is one possible way, and it should be explored. Likely to accelerate this trend is Remedy's new Guarantee@Remedy program, which guarantees installations of products in fixed time intervals ranging from 30 to 90 days, depending on the product. While the concept is a good one, both demonstrating the company's confidence and providing real value to customers, the downside is a need to increase and train installation service staff. Remedy says that it is beginning to build more service partners, which may help improve this ratio.

Remedy Corporation: Poised for a Comeback

Although promised for 1999 the company did not release a travel and expense management product. However the company is now close to announcing a partnership agreement that will allow it to offer a travel and expense product.

Revenue has grown consistently and substantially, with revenues rising from $20 million in 1994 to $229 million in 1999. (See Figure 1). Annual growth has been less than 50% only in the last two years, with the low point at 22% in 1998, and 1999 at the 45% level. The AR System was initially sold as a tool to companies that wanted to build their own applications. One such company is Wal-Mart, where the AR System is the backbone of many of the chain's internal operations. Remedy then began using the AR System to build pre-packaged solutions for internal help desk, change management, and asset management applications.

In the mid-nineties Remedy was a hot stock. At that time and through 1998, its sales were almost exclusively based on the AR System, which customers used to build their own applications. However, by 1998 Wall Street's favors had been placed elsewhere.

In the intervening years the company has grown to be a significant supplier of products for employee-intensive business practices. Through 1999 the product line evolved to specialize in support functions for Information Technology operations, organized into three groups: Service Management, Customer Relationship, and Employee Workplace Automation. These are the foci of individual strategic marketing units.

All of Remedy's homegrown applications were built on the AR System, and acquired ones have been retooled to work on that base. The Service Management group concentrated on the Remedy Help Desk, a client server application used for the tracking and resolution of IT support requests. Remedy is the leading vendor and owns almost 25% of the internal help desk market. Other products in this line include Remedy Change Management, which is tied for second place in its market, Remedy Asset Management, and Remedy Service Level Agreements.

The Customer Relationship Management unit is built upon the acquisition of BayStone Software in October 1998 and the Sales Continuum sales force management product from Pipestream Technologies in 1999. Products include Remedy Quality Management, Remedy Customer Support, and Remedy Leads Management.

Spending, both on Research and Development and on Sales and Marketing, has been growing, as shown in Figure 2. On the average over the past few years, sales expenses have been about twice research expenses.

The company has been profitable since 1994. (See Figure 3). The company has licensed its software to more than 4,800 customers at more than 8,800 sites. Of these, approximately 3700 have been with Remedy since at least 1998 and were customers of the AR System. In 1Q1999 about 15% of license revenues were from packaged applications, and in 1Q2000 that number had increased to about 35%, with 10% derived from the two newest applications eCRM and eProcurement. In 1999 46% of revenues came from partners. Most revenues outside the United States come via partner relationships. Over 90% of customers renew their maintenance agreements on a yearly basis.

Figure 3

Remedy has some noteworthy financial credentials. It has a healthy 13% profit margin (19% operating margin) and boasts an excellent average collection period of 72 days. However, some recent trends bear watching. The ratio of net income to net sales decreased slightly from 0.23 for 1997 to 0.13 for 1998, and improved only slightly for 1999. Also, the growth in R&D investment is low at 21%. A third metric, the mix of license and service revenues, is discussed below.

Remedy looked into the future and saw two things. First, the market potential of business-to-business e-commerce. Second, it recognized that the magic word is "Enterprise." In April 1999 Remedy lost the services of reseller Barnhill Associates to competitor Peregrine, Inc. Barnhill switched not because of the quality of Remedy's products, which it found that customers liked, but because it heard its customers looking for enterprise level solutions, not only in help desks but also in other areas such as asset and facilities management.

Remedy got the message and responded quickly with a pair of strategic acquisitions. In July 1999, the Company acquired Pipestream Technologies, Inc. (Pipestream), a privately held provider of state of the art modular, customer relationship management software, including sales force automation applications. Two months later Remedy acquired Fortress Technologies, Inc. (Fortress), a privately held enterprise asset management process consulting firm. This provides Remedy both with expertise for developing asset management projects and a consulting business.

By the end of 1999 the trade press was full of articles about how the next important area was going to be customer relations management for web-based businesses. In February of 2000 Remedy acquired Axtive Software Corporation, a company whose technology and products help its customers personalize the experiences of their website visitors.

Remedy is targeting sales at companies with between $100 million and $1 billion in sales; on average its customers have about 1000 users of its products. Its corporate mission is to accelerate its customers' move into e-business while enabling them to differentiate. This is a new direction, designed to capitalize on the strength of the new economy.

The mission has two components, represented by the two product areas that rose from a recent reorganization. The e-Customer Relationship Management group combines Remedy's traditional CRM products with its new Internet products. With the acquisition of Axtive we can expect to see strong personalization features pervade these products.

An even more important component of customer service will be integration between various modes of customer service: Web, phone, and e-mail. The eBusiness Infrastructure Solutions group provides products to bring technology to employee-facing applications and to infrastructure support tasks. Early additions to this line will be tracking of capital assets and of leased items, and support for auctions to eliminate unused inventory.

Integration between these two divisions is likely to come (probability 80%) through supplier side e-procurement. While Remedy is arranging to partner with a number of best-of-breed marketplaces (Commerce One being the first), so that it can leave the supplier side of e-procurement alone, we expect that it will ultimately move into this space. If so, its goal will not be to compete with its marketplace partners but to leverage its technology to offer a stronger support package for prospective market makers.

We also think it likely (probability 60%) that Remedy will develop (by acquisition) B2C technology. Providing a solution for its customers who want to enter into retail commerce on the net would be a logical way to repackage its CRM tools.

Remedy is about to hop on the ASP bandwagon. At present it offers a subscription service for smaller customers, but selling to application service providers will increase the range of this service, one that is attractive for both smaller customers and ones that need to make a quick entry into one of Remedy's solutions, without the pain of becoming a large-scale Internet service provider, something that is far from Remedy's core competence.

QAD Explores E-Business While Not Abandoning ERP

QAD, a leading ERP vendor, announced a number of product and alliance initiatives prior to and during Explore 2000, its annual user conference that took place in Nashville, TN from May 15 to May 17. Following are the excerpts from some pertinent company's press releases.

On May 16, Commerce One and QAD announced their intention to form an alliance to deliver access and integration to mid-market and multinational manufacturers in QAD's target vertical markets through the Commerce One BuySite e-procurement application and Commerce One MarketSite Global Trading Portal. Commerce One and QAD expect to finalize the terms of this alliance and execute definitive agreements by the end of May 2000. As a result, it is expected that QAD customers can lower their indirect procurement costs by leveraging BuySite's e-procurement capabilities and streamline e-business sales channels by automating the entry of sales orders from MarketSite Global Trading Portal. Both applications are to be fully integrated with QAD MFG/PRO and QAD eQ products this year

"By gaining entry to Commerce One's extensive network of suppliers, QAD customers will be well positioned to take advantage of trading communities," said Pam Lopker, president of QAD. "We foresee that companies who select QAD eQ B2B applications will also be adding the capability to receive orders from Commerce One MarketSite and will be able to intelligently distribute those orders to multiple plants and distribution centers."

Furthermore, on May 15, QAD announced the availability of reverse auctions with the QAD eQ Business-to-Business (B2B) suite of applications. QAD reverse auctions should enable manufacturers to drive down material costs by leveraging QAD eQ's demand aggregation capability and then automating the reverse auction and vendor selection processes. QAD eQ allegedly qualifies vendors based on multiple critical factors, including price, the ability to meet schedules, and shipment methods. To build intelligence into the solution, QAD eQ uses the vertical expertise of QAD service consultants to help companies address their industry-specific needs. The QAD eQ Relationship Management Framework supposedly then can apply built-in rules to each situation based on what vendor is participating.

"We're finding that many of our customers prefer to keep control of their transactions and not place their private information on a public exchange," said Pam Lopker, President of QAD. "With QAD eQ reverse auction functionality, our customers have greater control over who participates in their exchange - as many or as few vendors as they deem appropriate. The solution also offers the potential to reach out to multiple industry trading exchanges to satisfy special procurement needs."

Also on May 15, QAD and MDI Source.com announced a strategic alliance for a trading exchange focused on medical device manufacturers and their suppliers. Under a multi-year agreement, MDI Source.com will use QAD eQ B2B applications and the two companies will co-market the MDI Source.com integrated purchasing solution to approximately 3500 buyers and 10,000 suppliers in the medical device industry. QAD and MDI Source.com will jointly develop and market a set of applications that will integrate MDI Source.com's processes into existing enterprise systems, including the many medical companies utilizing QAD MFG/PRO. In addition, the two companies will aim to develop an application based on the QAD eQ architecture that may create information transparency between the user's systems and those of their suppliers.

Earlier on April 24 QAD announced an agreement with IBM to combine QAD eQ B2B applications with the IBM WebSphere Commerce Suite. The total e-business solution will possibly offer manufacturers and distributors a complete business-to-business (B2B) solution accessed through a user-friendly business storefront interface over the Internet.

"First generation storefronts cannot answer the needs of B2B trading partner relationships," said Pam Lopker, president of QAD. "QAD will provide an elegant solution to this situation that combines the sophistication of a full-featured B2B solution with IBM's e-commerce solution. This will offer manufacturers an effective way to improve operational efficiency and increase customer satisfaction."

Last but not least, at the opening presentation of its user conference, QAD also unveiled the plans regarding the new release of its core ERP product, MFG/PRO. The new product, branded as MFG/PRO eB, is due in July/August 2000, and will allegedly exhibit significant functional, interconnectivity and e-business enhancements. QAD also intends to extend this product into more vertical markets and to support more localization and regulatory requirements.

We believe that QAD has seen the worst in 1999. The Company seems to have successfully curbed R&D expenses (which amounted $100M during the last 3 years) while expediting the delivery of its eQ product. The prolonged and exorbitantly expensive development of eQ has seriously affected the Company's recent financial performance. In 1999, QAD also introduced the fully Internet enabled release of MFG/PRO v. 9.0 and strengthened its global service organization.

QAD will continue to nurture its large loyal customer base, which accounts for approximately 80% of its revenue. Note that 65% of them are true global, multi-national organizations. The aim of this conference was to assure its customers of QAD's intentions to help transition them successfully into the new Internet economy, just as it helped them resolve issues in the past (e.g., Y2K & Euro compliance). QAD has been making every effort to enable a smooth transition into uncharted territory and to ease the apparent anxiety among dazed customers.

There are a number of reasons to expect a brighter future for QAD.

The first is the Company's well-established leading global position in Small-to-Medium Enterprises (SME) and divisions of large global companies, where QAD has a large loyal customer base and a dispersed global network of offices and indirect channel.

Second, QAD is very competitive in speed and ease of global multi-site implementation due to its global service and support capabilities. Its average multi-site implementation often takes less than 6 months while the total cost of ownership is often a fraction of its larger competitors'.

Also, QAD has a somewhat unique vertical and vertical sub-segment focus within certain industries (e.g., with solutions for the after-market, OEMs, and suppliers segments within the automotive industry).

Finally, QAD was one of the first mid-market ERP vendors to incorporate concepts of e-commerce, Supply Chain Management, and interconnectivity with other vendors' products, which provides QAD with an opportunity for sustained future license and service and support revenue.

We favorably regard the company's recent e-business moves, which are in sync with the market trends. Moreover, QAD seems to have grasped underlying e-business customer needs and business process intricacies while most of its competitors have yet to figure those out and are mostly at the stage of providing simple B2C Web storefronts. QAD's comprehensive e-business offering, which includes the following modules speaks for it:

1. sell-side B2C (the PowerSystem Storefront Catalogue, developed in partnership with IBM)

2. sell-side B2B eQ (integrated with MFG/PRO)

3. buy-side B2B eQ for direct materials (through reverse auctions)

4. buy-side B2B for indirect materials (aggregated supplier catalogues for MRO modules developed in alliance with Commerce One and to be delivered in the ASP mode)

Very notable is the central B2B Relationship Management Framework module, envisioned to provide many-to-many relatiionship modeling functionality, both within an enterprise (internal suppliers and customers) and beyond enterprise borders (external business partners). Once defined, these relationships would determine workflow and will allegedly be created and/or modified by ordinary end-users on an ongoing basis. The only e-business component still to be desired is product lifecycle management (PLM) collaboration, which has been delivered by some of its competitors like MAPICS and Made2Manage.

We also agree with QAD's plans of enhancing its core ERP product and continued emphasis on integrating eQ components with back-office systems (not necessarily MFG/PRO). Companies are increasingly realizing that the fancy 'click' side of the business is a mere castle in the air without a proper 'brick' business foundation. It still matters very much what and how a company manufactures. Therefore, QAD recommends the following e-business roadmap for its current users:

1. Create a Web Storefront

2. Integrate it with MFG/PRO

3. Upgrade to MFG/PRO eB

4. Connect with eQ

5. Collaborate through reverse auctions for direct materials

6. Participate in Internet Exchanges through eQ

7. Rest (read maintain and/or improve business processes).

We believe there is a genuine need for recommending these steps beside QAD's intentions to generate more revenue from its install base.

Nevertheless, the company faces the challenge of delivering its very ambitious undertakings as planned and creating greater market recognition (mind share) for eQ outside of its current MFG/PRO customer base. The company will have to give a serious thought to how to best utilize its current sales & marketing resources to sell its two major product lines.

While the idea of spinning off the eQ business may be tempting, it may not make much sense at present, given the fact that QAD has been closing its ranks as a part of the recovery strategy. Any hiccups and delays in its product development execution, possibly bundled with bland sales execution and cautious initial eQ acceptance within MFG/PRO customer base, may put significant strain on its eroded cash resources. Any product development and/or integration with 3rd-party products requires a painstaking effort, and significant part of it is still in progress as mentioned above. Mitigating factors in this regard, however, are platform and back-office independence of eQ and the proven interconnectivity of QAD's products in the past.

Also, its partnership with IBM holds the prospect of a true synergy rather than mere a marketing pitch, where QAD would provide its proven industry expertise and IBM the underlying infrastructure.

QAD has not yet officially announced its plans regarding Customer Relationship Management (CRM) as well as a more articulated ASP strategy. During our attendance of QAD Explore we were made aware that some alliance negotiations were in progress, and the market should expect related press releases in the near future.

Antidisintermediation

There are $400 billion worth of used capital equipment to be traded. eSprocket wants to bring the business online without bypassing the processes and brokers that make it work. eSprocket observes that less than 5 percent of this huge market occurs in auctions. The reason, they suggest, is that used capital equipment items are not commodity items, as new ones might be.

Even beyond the differences between models, each item has a unique use and repair history, and each potential buyer and seller will bring a host of logistical issues to the table. Therefore, eSprocket's strategy for an online marketplace is to provide a way to enable (and improve) the kind of complex negotiations that offline buyers and sellers engage in.

The technical heart of their approach is the Negotiation Table�, a private environment that a prospective buyer and seller create for the purpose of negotiating. A Negotiation Table is like a souped-up, two-person combination of a chat room and forum, with other enhancements. The buyer and seller can "meet" at the table for a live discussion, or can leave messages for each other. The discussion thread can be bookmarked and, through features of the Negotiation Table, can be used to build a contract. Both buyer and seller can be engaged in multiple negotiations at the same time. Negotiations around the purchases of large, used capital items equipment typically take from days to months.

Traditionally, much of the trade in capital equipment goes through the hands of professional brokers. These brokers add a good deal of value to the flow of merchandise. They may purchase goods for which they have no immediate buyer, a boon for the sellers, and can also testify to product features and equipment quality.

eSprocket not only expects brokers to be participants in its market, it encourages them. It has a partnership with the world's largest used equipment dealers association; this brings eSprocket a starting inventory of more than $1 billion, with potentially as much as $10 billion in the long run. Dealers will be given a 30-day exclusive opportunity to respond to new listings.

eSprocket will also have its own experts in each significant vertical industry it works with, reflecting their supposition that this is a knowledge-driven business. They also plan to offer a range of value-added services, including financing assistance through Fleet Capital Corporation and delivery services through Hub Group, North America's largest shipping broker.

Used equipment is a business that will get a significant boost from the Web, and eSprocket is not the only company to have an interest in it. From a wider e-commerce point of view, there are two general observations that can be made as a result of this announcement.

First, this creates interesting opportunities both for asset management software makers and for digital marketplaces. It is reasonable to expect the development of an integrated set of processes that carry a product from its offering as a new piece of equipment in a marketplace through its lifetime in a company and finally straight into a used equipment marketplace. This suggests that at least some marketplaces and e-procurement or asset management vendors will attempt to create their own markets for used equipment. We'd also expect that such companies would create markets that were wholly digital, unlike eSprocket's. If eSprocket's market analysis is on target those folk will all be fighting for 5 percent of the pie.

Second, we think that preserving the role of intermediaries in Web-based systems is a concept that will spread. eSprocket is not the only company to do this but the number is very small (unless customer service organizations are counted). Of course many businesses can be conveniently disintermediated, but we suspect that humans aren't extinct yet and that e-commerce will grow faster once there are viable models for intermediated commerce on the Internet..

Case Study: Service Provider Xcelerate Speeds CommerceScout Along New Trail

Sometimes when you start out on a journey, a guide can direct you to a destination quite different from the one to which you originally had set course. Such is the case for CommerceScout, a dot-com located in Seal Beach, California. Their destiny was forever altered when they enlisted the services of Florida-based e-business service provider Xcelerate to serve as a trail guide.
Eyeing the enormous potential of the B2B Marketplace, Steve Oakley, a software industry veteran, founded CommerceScout In November 1999, with the initial business model to provide transaction processing and order fulfillment services to online auctions. However, through its interaction with Xcelerate, this business model was replaced with one that would bring buyers and sellers together across multiple marketplaces.

The paths of the two companies crossed as a result of a preexisting relationship between company executives, which netted CommerceScout a few days of complimentary consulting. "I was just very impressed with their brainpower," said Steve Oakley, President and CEO of CommerceScout; "The Xcelerate consultants quickly became indispensable members of the team."

It should be noted that the two consultants who showed up on Steve Oakley's doorstep were the ones who he wanted on the team throughout CommerceScout's engagement with Xcelerate.

Having demonstrated their value during the initial consultation, Xcelerate agreed to accept work one short-term contract at a time. This demonstrated Xcelerate's confidence in their ability to deliver ongoing value to the client and reap continued business. It afforded CommerceScout a high degree of flexibility and the ability to maintain control of their destiny without subjecting them to the constraints of a longer-term contract. Overriding the contractual arrangements was a sense of partnership that developed between the two parties.

During the initial joint meetings the team examined the de facto strategy. Xcelerate was a major player in the rapid analysis of the market opportunity, potential competitors, and technical challenges. The team concluded that they were heading into very dangerous waters as existing major players were well positioned to enter the market space.

Going back to the drawing-board, the team identified that there was a genuine opportunity to create a portal for multiple marketplace management. In other words, offer end users visibility and navigational tools that span multiple marketplaces in a vertical segment (i.e., electronic components, chemicals). Excited by the prospects, CommerceScout contracted with Xcelerate for another three-week engagement to validate the concept and strategy before fully committing to it. (This also set the model for the contractual relationship between the two parties; with CommerceScout contracting Xcelerate for each discrete phase of the project.).

As the project continued Xcelerate became deeply involved in the development of the CommerceScout service. The joint development team made up of five CommerceScout personnel and seven Xcelerate personnel set up shop in Xcelerate's Atlanta development Supercenter. Although Xcelerate is a "Pure play" digital business service provider, CommerceScout chose to outsource marketing (branding & image) to a local southern California firm. CommerceScout is now certain that Xcelerate could have done the marketing piece, but admit that they were simply uncomfortable being reliant on a single vendor.

Overall, CommerceScout has been very happy with its relationship with Xcelerate. Early weaknesses such as a perceived disconnect related to integrating certain marketing functions into the project plan and perceived high relative percentage of project management time within the plan were quickly and satisfactorily responded to by Xcelerate. Once the present initiative to wirelessly enable the CommerceScout service is complete, CommerceScout envisions maintaining Xcelerate on some type of retainer basis. Either way, the connection between the two companies will continue, either formally or informally, as Bruce Frcek, President, CEO and Chairman of Xcelerate now occupies a seat on CommerceScout's Board. CommerceScout's Oakley envisions a day 12-18 months down the road where they will have in-house talent to meet most of its needs.

Oakley says he is a very satisfied client, giving Xcelerate high marks across the board for their strategic and technical digital business skills as well as their ability to execute and meet deadlines.

The capabilities that CommerceScout achieved from Xcelerate enable it to provide frictionless marketplace participation in a network of marketplaces. This effectively creates markets without boundaries. CommerceScout can now provide an integrated suite of tools to buyers to cross marketplace boundaries, and by integrating functionality into sell-side marketplaces to interact with the buyer tools, CommerceScout thereby provides support for the full buyer/seller cycle. Currently, CommerceScout is developing end user (buyer) e-market tools that will be sold as stand alone modules. These products include Track, Watch, Communicate, Analyze, Negotiate, Automate, Procure and Sell, whose names obviously indicate the suite of capabilities CommerceScout is providing or intending to provide.

CommerceScout also makes its money from a combination of license fees and small transaction fees automatically notched up with each transaction. Transaction fees are derived from e-markets that create order fulfillment as a result of the CommerceScout Network conduit. License fees are derived from end users (Contract Manufacturers), and from e-markets looking for additional functionality and analytical reporting across multiple marketplaces.

* CommerceScout was impressed with Xcelerate's ability to recruit and retain high quality people. This is often an under-appreciated sales angle for vendors, particularly those who rely on sales people alone.

* Xcelerate secured CommerceScout's business through the use of "complimentary" consulting days.

* Xcelerate demonstrated a high degree of flexibility with respect to contractual arrangements, agreeing to short-term (often 3-4 week) contracts that were continually renewed.

* Meeting deadlines with a quality deliverable is the most significant demonstration of the service provider's commitment to your client.