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:

pierre@spendmatters.com

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.

Thank you to our sponsor, Hubwoo

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

Top 10 Challenges to Adopting Cloud

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

Congratulations – you are now a Cloud Expert

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

pierre@spendmatters.com

617.281.6185

Mani Mangalathumadam

Director, Procurement Advisory Services, KPMG

mmangalathumadam@KPMG.com

214.840.2220