The analyst team at Ardent Partners recently sat down with Ole Nielsen, Founder and Chairman of Scanmarket A/S, a European-based provider of strategic sourcing solutions that was founded in 1999. Ole is based in Atlanta where he serves as the President & CEO Scanmarket’s North American Operations.
Scanmarket Hits a Growth Spurt
According to Ole, Scanmarket had a strong 2015, particularly in its North America region which grew sales by 105% year-over-year. Overall, the company ended its most recent fiscal year with 35% year-over-year growth. Ole expects North American growth to continue so much so that it will soon become the company’s biggest region, surpassing both Scandinavia and the UK. Today, North America accounts for roughly 30% of Scanmarket’s global customer base, while the majority of the company’s 300 customers are located across Europe. For many years, the company targeted customers with revenues ranging from $700 million to $2 billion; but that has changed significantly in recent years, with Scanmarket now targeting companies with revenues between $2 billion and $8 billion, and in some cases, higher. From an industry perspective, its top market segment is the food and beverage industry, with British Foods, Molson-Coors, and Mars Chocolate as notable clients. Manufacturing is Scanmarket’s second largest industry, with Nissan Automotive as one of its largest name-brand users. Media and telecom is its third-largest market segment, with Paramount Pictures, Nielsen, Viacom, and Digicel as top clients.
From eSourcing to Strategic Sourcing
All told, Scanmarket offers six cloud-based strategic sourcing applications- eRFX, eAuction, Supply Base Management, Contract Management, Project Management, and Spend Analysis – which combine to form the Scanmarket suite. Over the past couple of years, the company has been busy changing up its product offerings, developing new solutions, and in some cases, redeveloping legacy solutions to meet the changing needs of the market. According to Ole, Scanmarket decided to split its legacy eSourcing tool in two and made eRFX and eAuction their own unique solutions. Within the past two years, it launched new supply base and project management tools and relaunched its contract management solution, joining the sourcing and spend analysis tools on Scanmarket’s cloud-based platform. Most of Scanmarket’s customers are customers that began using its eSourcing solutions, like eRFX and eAuction. Over time, many have expanded their technology footprints with spend analysis and contract management. This type of customer expansion has been a significant contributor to the company’s recent growth, said Ole, particularly as customers see the value in using familiar applications that can also drive sizable throughput.
Beyond eSourcing, Scanmarket has also been gaining new customers by selling its Contract Management and Supply Base Management as standalone solutions. Scanmarket reports its supplier network currently has over 200,000 registered suppliers, with 40% that have been active on the network in the last 18 months. The network includes a supplier rating system and users can currently search and see if a supplier has participated in a sourcing event and is therefore familiar with the systems. Currently, Scanmarket lets each customer decide whether or not their suppliers’ information is shared across the network.
One area that excites Ole about their solutions is Bid Matrix, a component of their eRFx tool that helps sourcing professionals conduct large sourcing optimization projects like transportation tenders (primarily in freight/logistics), car leasing, and packaging and materials. Scanmarket launched this capability three years ago and is starting to see a significant increase in usage of late. With it, users can link directly with Excel, leverage “Big Data” for sourcing and supply chain networks, and then create tenders. After they have created an event, users can create ‘what-if’ scenarios, compare and contrast, and select the suppliers and/or supplier bids that best fit (or optimize) their needs.
Beyond the technology, Scanmarket has a team of eSourcing consultants that run managed sourcing events for the customers who lack the manpower and/or expertise to run them independently. Scanmarket has seen more than a 50% increase in the number of managed sourcing events that they conduct in the most recent time period. Despite this growth, roughly 90% of company revenue comes from its platform and not consultancy work, like fully-managed events. Ole also noted that the company has other partners within the consulting services field, including KPMG, a firm that is also using Scanmarket internally, as well as select small and mid-sized consultancy firms.
Plans for the 2016 and Beyond
Ole says the Scanmarket developers are currently focused on a release that they plan to launch in the second half of 2016. Of note, the team is working to improve the user interface to increase mobile usage, although they do not expect users to conduct sourcing events on their phones and tablets. Rather, they believe that sourcing team stakeholders would like to see outcomes and reports on their hand-held devices. Accordingly, developers are trying to enhance the platform’s reporting capabilities especially as they pertain to eSourcing. Scanmarket is also looking to build some KPI functionality into their solutions.
Although in his view, Scanmarket offers a complete, upstream sourcing suite, Ole believes that they ultimately need to be able to offer a full source-to-settle solution suite. He and his executive team do not want to build a P2P system, so another priority for Scanmarket in the year ahead is to find the right downstream or P2P partner to link solutions and become more competitive on full-suite deals. Scanmarket currently partners with multiple solution providers but they prefer to find a single provider moving forward.
Scanmarket is on the right track. Several of Scanmarket’s customers are highly sophisticated users of technology and our independent discussions with them validate this view. Scanmarket has had another strong year in terms of customer growth, market expansion, and the continued development of its cloud-based strategic sourcing platform. One clear result is that we are starting to see it more frequently mentioned and included in US-based RFPs. With its growing US presence, we expect to see the US market to eclipse the Scandinavian and UK markets over the next couple of years. As investors eye opportunities in the market, the recent market consolidation has also helped to enhance Scanmarket’s profile.
To continue its independent expansion, it has correctly identified the need to partner with a preferred P2P solution provider or two in order to stay on its current trajectory. Unfortunately, these upstream-downstream partnerships are difficult to manage from a sales, operations, and technical perspective and many more of them fail and/or fail to make any real headway. As such, the onus will be on Ole and his team to find the right partner and execute well.