Why Coupa bought Llamasoft - bringing community intelligence to the supply chain

Profile picture for user pwainewright By Phil Wainewright November 11, 2020
Summary:
Coupa's acquisition of Llamasoft is a big test for its community intelligence strategy, bringing it into supply chain planning

Llama greeting in Peru - Photo by Yuvy Dhaliah on Unsplash
(Photo by Yuvy Dhaliah on Unsplash)

Spend management vendor Coupa made an unexpected move into supply chain planning last week when it tabled $1.5 billion in cash and stock to buy Llamasoft, its biggest-yet acquisition. In a year when supply chain uncertainty has been front-of-mind for many companies, the purchase adds capabilities that are in high demand. But the big prize will be combining Llamasoft's analytics with Coupa's community intelligence strategy, which uses artificial intelligence to mine buyer and supplier behavior across its customer base. The combination will yield valuable new insights to inform future spend decisions, as Donna Wilczek, Coupa’s Senior Vice President of Product Strategy and Innovation, explains:

Data underlies this acquisition. If you look at the ability for Coupa to be the engine of execution of the spend transaction, that execution of the spend transaction yields a lot of rich data, real-time data. That data will flow into Llamasoft for better, more accurate modelling.

As the outcome of the model turns into a decision, that decision needs to then be executed. We would expect many customers to move to more consolidated processes, where that decision in part is executed by Coupa — whether that's a sourcing event that might happen, whether that's a contract that might flow out of that decision — but that execution of the decision will in turn yield more data. And you have this flywheel — this beautiful compounding network effect that happens.

Llamasoft has two decades of experience in supply chain network design. During that time it has built up a blue-chip customer list of leaders in supply chain excellence, including Boeing, Danone, DHL, GM, Home Depot, Kimberly-Clark and Nestle, growing both organically and through acquisition. Its expansion into SaaS-based supply chain planning and analytics came more recently, with the launch of its llama.ai platform in January this year. That initiative came under the leadership of Razat Gaurav, who took over as CEO in April 2018 to cap a lengthy career in supply chain software that began at i2 Technologies and continued with JDA Software through its rebranding as Blue Yonder.

SimCity for supply chain

This year's extreme instability in supply chains has increased awareness of the need for flexible planning tools. The AI-based Llamasoft technology builds a digital model of the supply chain in order analyze potential outcomes and aid decision making. As Wilczek explains, it's a similar concept to building a virtual world in gaming, but with a real-world goal:

We've called it SimCity for supply chain ... effectively it creates a digital model, a digital twin of the supply chain. You pump data continually into that digital twin — the SimCity effect.

As the data comes in, the AI that is really the powerhouse of the solution — the AI and the algorithms that have been created by Llamasoft over the years — really crunches the data. When you look at the volumes of data that they're crunching, an average customer might have 190 billion permutations of scenarios that need to be considered.

This is particularly useful at a time when companies need to continuously remodel their supply chains to accommodate rapid change. Adding Coupa's data about supplier performance and spend patterns will help inform the model and should make decision making more accurate, says Wilczek.

The move into supply chain planning is consistent with Coupa's increasing use for direct purchasing of production materials and components alongside its original focus on indirect spend. The company aspires to act as a single collaboration layer between an enterprise and all of its suppliers, says Wilczek. And while traditionally, procurement and supply chain have been seen as separate albeit connected disciplines, Coupa sees itself as operating in a broader category of business spend management. Wilczek explains:

We look at business spend management as the umbrella of how an organization has a platform that facilitates collaboration across procurement, supply chain and finance in spending that organization's money ...

The [traditional] platforms and technology are not facilitating that collaboration. We have a vision — and we're working hard to execute on that vision — of creating this collaborative finance model, collaborative supply chain, collaborative procurement, where instead of these silos existing, it's all focused on how do you optimize every dollar that this organization spends?

By enhancing the company's investment in AI, the Llamasoft acquisition will help Coupa's customers irrespective whether or not they use it for supply chain, Wilczek argues. She explains:

If you have a supply chain, this is a slam dunk. This is technology that will impact and improve your supply chain ...

For those customers that do not have a supply chain — for example, financial services or software technology companies — the way that this acquisition will yield value is through the infusion of more AI expertise into Coupa.

The number of data scientists and really brilliant AI minds [coming] into the Coupa team now, those minds applied to this community intelligence — the dataset, the trillions of dollars that are flowing through Coupa — will yield even more value to all our customers, with prescriptive insights, more recommendations, cost containment opportunities.

The Llamasoft acquisition is Coupa's fourth this year and brings its total acquisition count to at least seventeen.

My take

This is not only Coupa's biggest acquisition by far, but also a huge bet on the power of its community intelligence model, as set out by CEO Rob Bernshteyn earlier this year in the book Smarter Together. This is the notion that businesses can gain competitive advantage not by hoarding information and data but by pooling it. As Bernshteyn writes:

Bringing the best Community Intelligence to bear in making these vital decisions significantly increases the likelihood of your ability to make the right choices.

This acquisition will certainly be an interesting showcase for the principle in action. Coupa does have a huge dataset, which it already mines to help guide customers on supplier risk, flag when a company's spend processes are underperforming against its peers, and even track trends in business spend sentiment. But it's far more ambitious to tackle supply chain planning, where there are already plenty of up-and-coming AI-powered solutions vying for attention. If Coupa can win the trust of some of the world's leading supply chain practitioners it will be a real coup.