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Cloud Procurement Bill of Rights: The Right
to Savings, Security, and Selection
Pierre Mitchell
Chief Research Officer
Spend Matters
Mani Mangalathumadam
Director, Procurement Advisory Services
KPMG
January 14, 2014
About Pierre Mitchell
• Pierre has 25 years of procurement
and supply chain industry and
consulting experience, and is a
recognized procurement expert
specializing in supply processes,
practices, metrics, and enabling
tools and services.
• He is a regular contributor to
business publications, a frequent
presenter at industry events around
the world, and counts himself
fortunate to have served and
interacted with so many CPOs and
future CPOs.
Contact:
617.281.6185
About Mani Mangalathumadam
• 17 years in supply chain covering spend
analysis, sourcing, contract management,
procurement, accounts payable, inventory
management, material planning & logistics.
• Has provided process and technology
consulting and outsourcing advisory to large
corporations across Source to Pay, Order to
Cash and other core supply chain areas.
• Led a variety of process improvement and
business transformation engagements, and
managed multiple local and global system
implementations relating to Sourcing &
Procurement.
Session Objectives
• Quick primer on Cloud and SOA (Business and IT)
• Discuss Cloud Procurement components
• The Promise of Cloud Procurement
• The Pitfalls and the Dark Side of the Cloud
• Asserting your Rights to a Coherent Cloud
• Wrap up and Q&A
Cloud Computing in a Nutshell
Internet-based data access & exchange
Internet-based access to low cost computing & applications + Cloud
Environment =
On-Demand Self-Service
Internet Accessibility
Pooled Resources
Elastic Capacity
Usage-Based Billing
Cloud Environment Characteristics:
Cloud Service Models
Software as a Service
Business operations over a network
Google Docs, Salesforce.com
Platform as a Service
Deploy customer-created applications to
a cloud
MS Azure, Amazon Web Services
Infrastructure as a Service
Rent storage, processing, network and other computing
resources
Mozy, Rackspace
Cloud Deployment Models
Private Operated for a single organization
Public Available to the general public or large industry group, owned by an organization selling cloud services
Community Shared by several organizations, supporting a specific community
“SaaS” “PaaS” “IaaS”
SaaS Bill of Rights
• Richer user experience – SaaS apps bring Web 2.0 usability to the enterprise world through rich internet applications using Adobe Air, HTML 5, Microsoft Silverlight, etc.
• Rapid implementation – SaaS applications focus on configuration and integration, not hard core implementation. Users can be up in weeks, not months.
• Frequent cycles of innovation – At present, most vendors introduce new functionality, enhancements, and bug fixes on frequent refresh cycles. Some vendors provide as frequent as weekly updates, others – seasonal.
• Minimal upgrade hassles – Users focus on minimal testing scenarios and receive updates all at once. In applications with significant regulatory and tax updates, SaaS applications reduce the cost of compliance by as much as 77%.
• Always on deployment – Organizations can expect average up-time levels at 99.95% or higher for most applications. These results often exceed existing on-premise performance.
• Subscription pricing – Subscription pricing reduces the capital burden of common on-premise payment models.
• Scalability – Organizations can add or subtract users as needed without worrying about procuring new hardware and other infrastructure.
Source: http://blog.softwareinsider.org/tag/saas-bill-of-rights/
ERP
Simple Example of Procurement migration from on-premise to SaaS
8
Contract Management
Spend Analytics
Sourcing & RFx)
Operational Procurement
Supplier Collaboration
Invoicing
ERP
Key Characteristics of the typical procurement 1.0 landscape: Standalone, single purpose point solutions Low to moderate degrees of integration On-Premise Centric High Total Cost of Ownership Less focused on end user experience
Key Characteristics of an evolving procurement 2.0 landscape: Suite oriented solutions Tight integration Open Standards Greater accessibility and scalability Greater use of On Demand resources Internal and External Collaboration tools Oriented towards the end user experience
¹ Operational procurement includes requisitioning, purchase order, and receiving functions (Source: KPMG)
Sourcing & RFx
Invoicing
Operational Procurement
Supplier Collaboration
Spend Analytics
Contract Management
Polling Question – What are your current cloud
computing capabilities?
None – We run everything behind the firewall
Weak in Procurement – Cloud only for IT infrastructure
Some Cloud Procurement (1 or 2 SaaS modules)
Good – SaaS application Suite
Very Good/Excellent – SaaS/Biz Networks or XaaS
Some Basic Trends
• The technology world is moving aggressively to the cloud across all areas, including procurement and supply chain
• The economics (and service levels generally) are compelling – TCO from SaaS procurement is less than on-premise
– SaaS/BPaaS has been a popular option for the CPO
– Some level of “SaaS anarchy,” but still the best economic choice
• Every procurement technology provider (and IT shop) is starting to place bets on PaaS/IaaS, not just SaaS applications
• Traditional on-premise application providers are re-writing their applications for the cloud, acquiring smaller players, or having their applications “re-skinned” by themselves or others. The first two activities are non-trivial!
• Some SaaS functionality, and additional value-added services (integration, content management, financing, analytics, etc.), increasingly moving into “business networks”
• Analytics/Market Intelligence (as a service) is very hot right now
Cloud Computing is part of something bigger than SaaS
• Products and services are getting smarter. ‘Prosumerization’
• B2B Value Chains are also increasingly ‘virtualized’, as are
internal ‘business services’. Both are enabled by a service
oriented architecture of business process and of technology
– ‘Global Business Services’, like IT and Procurement
– A spectrum of embedded 3rd party services (ITO, BPO, etc.)
• So, Procurement and IT should be world-class at the sourcing
of “services” (Labor, Info, Tech). Are you:
– Well resourced in both? Delivering compelling value?
– Serving each other well? Aligned on metrics?
– Tapping service providers smartly? At least for YOUR spend?
– Do you have such an SOA for “prosuming” these services? If no…
Procurement is a service provider and also consumes 3rd party
services. This is a better way to “lot” the market basket than
Source: Spend Matters
Spen
d O
wn
ers…
Inte
rnal
Ser
vice
Par
tner
s
Exte
rna
l Cu
sto
mer
s Knowledge / analytical
processes
Information, content,
and community
Software
Applications
Transactional /
operational processes
Transformational
processes
Application Platforms &
Networks
Technology Platform &
Infrastructure
Bu
sin
ess
Un
its
External Services Internal Procurement Service Provision
External Demand
Internal Demand
Pro
cure
men
t
Business Processes (Outcomes and/or
Resources)
Software Applications
Application Platforms (and Networks)
Application Infrastructure
Service Delivery Models
BPaaS
SaaS
PaaS
IaaS
Deployment Models
• Consulting • BPO/KPO • Contingent • MSPs • Subscription-
based IP
• Public • Hybrid • Private
Vendors in this stack
may vary by process and
spend category
So, why the focus on all this architecture stuff?
• Ability to mix and match third party (and internal) offerings more easily. Allows you to “lot” your market basket differently (e.g., MDM, Analytics, Portal, BPM/B2Bi, etc.) vs. just modules
• Understanding provider strategies (e.g., Mobile) and partnerships. This helps unlock other options (e.g., BPaaS)
• Network services beyond SaaS (i.e., on-ramp vs. network) – Supplier Discovery
– MDM/Content Management (e.g., ‘virtual catalogs)
– Integration – beyond EDI and even XML
– Intelligence and Analytics
– Common ‘services’: security, personalization, eSignatures, ‘glocalization’, context-specific business logic, etc.
– Implementation-focused services. Focus on supplier.
• Trend of business networks increasingly becoming PaaS-focused to open up the ecosystems and deploy flexibly
Even with all this innovation, there are still issues…
Challenges with Cloud Procurement
• Application fragmentation (even within an ERP environment)
• IT department alignment with Cloud Direction
• Aligning implementation with on-premise timelines
• Business/commercial strategies of large suppliers (e.g., “open business networks” that really aren’t)
• Small ecosystems with large providers who ‘do it all’
• Immaturity/uncertainty of providers re: PaaS/IaaS
• Where to ‘place your bets’ with large providers
• Picking the best approach before best vendor (e.g., BPaaS)
• Lack of widely adopted standards
• Lag between innovation in IaaS/PaaS, CRM, and B2C, and the functionality you’ll see coming your way in eProcurement
Polling Question – What is your biggest perceived
issue with “The Cloud”?
Loss of Control: Data Security, Privacy, Availability, etc
Poor IT dept buy-in
Lack of flexibility: integration, customization, etc
Uncertain ROI
Immaturity of market / vendors
Key Cloud Risks - Discussion
Financial
Underestimated start-up costs
Exit costs
Contract complexity
Run-away variable costs
Tax Compliance and Planning
Business Risks
Financial
Vendor
Data
Regulatory and
Compliance Technology
Operational
Data
Data segregation, isolation, encryption
Information security – Pricing
Master Data Management (Items / Suppliers across systems)
Intellectual property protection (Procurement Design / Drawings)
Vendor
Vendor lock-in
Service provider reliance
Performance failure
Vendor governance
M&A within Vendors
Regulatory and Compliance
Complexity to ensure compliance
Lack of industry standards and certifications for cloud providers (PCI/SAS 70/FDA / HIPPA etc.)
Records management/records retention
Regulatory change control, reliant on vendor timeliness
Data privacy
Operational
Business resiliency disaster recovery
Service reliability and uptime
SLA compliance
Technology
Cross-vendor compatibility
Customization limitations
Integrations with other backend systems financial systems
Source: KPMG
Practitioners are beginning to re-assert their rights
and guide a more open and secure cloud future
• The right to have an enterprise-class application that can link to multiple
suppliers and supplier networks – not be part of the network itself
• The right to have your data be truly secure in your terms
• The right to have ‘your’ data be confidential (if you want it to)
• The right to get the available applications you’re being offered in the
manner that you want them. Need more sophisticated delivery models of
the applications – e.g., via an open platform.
• The right to a balance of powers and cooperation between them
• The right to add more amendments!
Copyright © 2013 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 19
The Future: Evolution to hybrid clouds that combine best of
public and private cloud…
Some Assembly Required
Enterprise Application Integration
Spend Analysis
Contract &
Compliance Procurement
eSourcing / Reverse
Auctions
Contract
Management
Accounts Payables
People - (Admin,SD,Ops)
Network Physical Resources Virtualization Storage
Private Public Hybrid
IaaS Orchestration layer
On Demand Workforce
(Shared People)
Cloud Orchestration
(PaaS / SaaS)
Integrated FlexDelivery for AMS
+ IMS
(Support as a Service - HUaaS)
Hardware on Demand
(IaaS)
Spend Analyst Sourcing Manager /
Analyst Contract Analyst
Procurement
Analyst AP Analyst People
P
rocess
(an
d d
ata
) P
latf
orm
Closing Thoughts
• Cloud Procurement is already here
• It is still early days in the market
• Have an architect – at least as a role
• Get Procurement & IT aligned at most basic levels
• Use BPaaS if SaaS is a challenge. Start simple and self-fund.
• Look for creative SaaS approaches/solutions that create R on existing I
• Tap objective third parties to help you
• Don’t make assumptions about what the market can/can’t do
• Assert your rights!
• Enjoy the ride. You are building the future.
Copyright © 2013 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 23
Questions?
Contact
Pierre Mitchell
Chief Research Officer, Spend Matters
617.281.6185
Mani Mangalathumadam
Director, Procurement Advisory Services, KPMG
214.840.2220