Horizontal Supplier Information Management gets a lot of attention from the analysts and industry pundits. There are many reports on the SIM space sponsored by the myriad of horizontal SIM vendors. Here’s just one example. At this point, most of the horizontal sourcing and contract management vendors offer a SIM solution which consists basically of a one-to-many portal where suppliers can register and provide the information the “hub” enterprise requires. Some of the SIM vendors take an A/P oriented approach, instead of a sourcing approach, promising to help customers clean up their vendor master, improve audit recovery, or help effect a check-to-ACH conversion process. Then, of course, there are the financial data providers like D&B and Experian who have moved into the SIM space as well.
Whatever the exact sales pitch by the vendor, the high-level notion is usually the same; the enterprise is told to set up a portal to manage their suppliers and benefit from the vendor’s “network effect” (e.g., database) from having worked with so many other customers. (There’s no network effect for the suppliers themselves, mind you, but it does make for a nice pitch to the enterprise buyer.)
The IT (Gartner, etc.) and some of the procurement analysts (who shall remain nameless) seem to like the pitch. They like the pitch partly because it is an interesting story and partly because they are paid by all of these small SIM vendors! The analysts are also receptive to the pitch because they are horizontal just like the vendors. The analysts cover the supply chain software industry broadly, rather than specific industry verticals.
The problem with this analysis is that the most interesting activity in the SIM space seems not to be among the horizontal SIM vendors (who are trying to collect high level information on all suppliers), but among the largely overlooked vertical SIM, or supplier credentialing vendors. The vertical SIM vendors gather deeper level data on suppliers in a specific industry and sometimes just specific types of suppliers within an industry (e.g., on-site contractors only). These Vertical SIM providers often interact with multiple buyers in the same industry to get agreement on what information should be collected from vendors and/or establish their own standard for the data to be collected. In that sense, they do not only SIM, but standards setting and evaluation. These vendors also often provide a true network effect for vertical suppliers, allowing them to register their information once and use it across multiple buyers within a network. Several of these vertical SIM vendors have replicated this same approach across multiple verticals in a serial fashion.
The most prominent example of this strategy is probably Achilles Group, which started in the oil and gas industry and has expanded beyond oil and gas into several other verticals. In 2011, Achilles reported about $72 million in revenue–and they are not even really present in the US. Are any of the horizontal SIM suppliers, besides D&B, in this size range for just their SIM product? Achilles is just the tip of the iceberg, too. There are literally 5-10 “Achilles” in the US and Canada working in capital-intensive industries with contractors.. There are also supplier credentialing companies in food, healthcare, and logistics as well. I’m sure as I spend more time looking for these types of vendors I’ll find many more examples in other industries.
In many of the cases I have looked at, the vertical SIM suppliers seem to be doing a whole lot better than the horizontal ones, who suffer from having to “boil the ocean” across a zillion suppliers, versus going deeper on a hundred thousand vendors or fewer. For example, Achilles’s 2011 $72 million in revenue comes with about 77k suppliers involved, representing revenue of about $900 per supplier. Clearly the horizontal SIM vendors who claim to have millions of suppliers in their databases are not yielding revenue anywhere near this per supplier, or they would be $1 billion businesses! Most of them seem to be well under $30 million in revenue.
Horizontal SIM without a true network effect for the supplier (and/or without a transactional network attached) is really just an example of asking big hub customers to set up another specialized portal for their suppliers to collect a limited amount of information. This approach offers little value to the supplier and limited value for the buyer as well. It will work for the very biggest of hubs, especially if it can be integrated with other aspects of their existing portal, but otherwise this approach is like selling “beepers” in the age smartphones–a single-purpose device in a world filled with convergence. Suppliers already often have to go to multiple portals to deal with some large customers–one for POs, one for invoices, one for payment, another for SIM. This approach is not sustainable in the long run.
Vertical SIM seems to be where: the action is, the network effect is, the business model is working, and the vendors are growing and thriving. Don’t let your attention be diverted.
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