April 29, 2020

Software Solutions To The Procurement Puzzle: Getting The Right Mix

Procurement software puzzle 600p

Over the past decade, companies of all shapes and sizes have shifted to digital business models. Many have had to completely rethink the way they buy goods and services, which has lifted procurement as a theme up the organisational hierarchy. It’s no longer seen as a backwater for underperforming employees, a place where suppliers get squeezed and invoices rubber-stamped and little else. Instead, it’s the heart of a more agile, innovative and data-driven organisation: the key to success in an increasingly open, complex world.

This is partly due to the vast amount of data that flows through procurement departments. Harnessed effectively, it can provide deep insights into business spending and supply chains, the ability to find cost savings that would otherwise be missed. But this can only be achieved with the right procurement software – and that’s where things start to get complicated.

Numerous software-as-a-service companies now jostle for space in a crowded market, each offering to supercharge procurement with their best-of-breed solution. Many address a specific element of the procure-to-pay or source-to-pay (S2P) process; the relatively low cost of a monthly subscription means they’re typically cheaper to implement than an all-in-one suite. Meanwhile, these suites – including SAP Ariba, Coupa, Ivalua and Jaggaer – have responded to the challenge by incorporating similar features into their products or launching best-of-breed buying sprees to quickly enhance their capabilities.

All-in-one suite or bespoke procurement system?

So where does that leave procurement leaders who are looking to upgrade their technology environment? Should they opt for an all-in-one suite or build a bespoke system with best-of-breed software? And which technologies are most likely to live up to the promises made by their vendors?

The answers will be partly dictated by the industry in question, the current IT environment, available funds and wider business objectives. Organisations with minimal legacy technology, for example, are arguably in a better position to adopt bespoke solutions.

But supply chain consultants reckon large organisations that are heavily invested in their current IT setup shouldn’t discount the best-of-breed vendors, either.

“You may have a very strong ERP [enterprise resource planning] platform or a very strong single-suite solution that covers the end-to-end view,” says Iain Kirwan, a director in Deloitte’s UK supply chain consulting practice. “However, you might want to accelerate the performance of these solutions by adopting some maturing or emerging technologies, or some additional bespoke solutions.”

On the other hand, if you’ve invested very little in your S2P processes “then you might be looking for some point solutions [systems that can improve capability in a single, high-importance area] to leapfrog where you currently are”.

Complexity masters outperform the competition

Chief procurement officers (CPOs) who haven’t got to grips with modernising their processes are already falling behind their peers. According to Deloitte’s Global CPO Survey 2019, roughly two thirds of CPOs are getting their house in order by implementing modern S2P applications that automate core workflows, which can free up staff to focus on more strategic work. Meanwhile, complexity masters – CPOs who outperform the survey population in terms of making key technology investment decisions – have a 30% higher adoption of “upstream” technology such as spend analytics, sourcing, supplier relationship management (SRM), contract management, and supply risk management.

Interestingly, however, a large percentage of companies that have fully implemented these technologies aren’t satisfied with the results. This is because best-of-breed solutions have a mixed level of maturity, Mr Kirwan says, which means some of the newer solutions “probably aren’t at the level that they need to be”.

At the same time, the big single-suite providers often claim to be able to do sourcing, supply chain risk, supplier management, contract management and more. However, “I think we’ve found that the maturity of some of the single suite providers [in some of these areas] is not at the level it needs to be at either”, Mr Kirwan explains. The fact that even some of the big established players still only have very immature offerings serves to demonstrate the importance of proof of concepts.

Integration is about data, creating a bedrock of accurate information that is available whenever, however it is needed. Although best-of breed tools are increasingly able to integrate with existing ERP platforms and other software tools, pulling them all together into a bespoke system can still be complicated.

“If you move to best-of-breed solutions to improve your efficiency or effectiveness, then you do have to deal with increased complexity,” Mr Kirwan says. “They are more fragmented applications, you’ve got more vendors to manage. That potentially increases the complexity – and therefore the cost – of integrating them.”

Consider the day-to-day user experience

CPOs looking to invest in new technology also need to be sure that their staff and suppliers will embrace the tools they have in mind. For instance, it’s vitally important to consider the day-to-day user experience; if people don’t like using a tool or module – or worse, can’t use it – then you can bet that maverick spending will occur. And once your core procurement workflows and processes are automated, will your staff be capable of taking on a more strategic role?

“I would suggest that strategic procurement functions fail not because of technology,” says Roy Anderson, CPO and digital transformation officer at Tradeshift and former vice president of global procurement at MetLife. “They fail because they haven’t reinvigorated their staff to meet the new levels of skill required.”

CPOs must also consider whether the best-of-breed vendor they’re eyeing has sufficient funding to keep pace with larger competitors. And they must also of course ensure that the solution they’re considering genuinely fits with the requirements of the business.

Nic Walden, a senior advisor in The Hackett Group’s procurement advisory program, says that whatever solution they choose “people say ‘we probably relied too much on what the salespeople told us. We didn’t do enough due diligence and actually test our own use cases, the way that we run our business processes, against what’s actually in the solution’.”

Indirect access and licence violations

Indirect access has posed challenges for SAP’s ERP platform. This is essentially a licence violation that occurs when SAP customers allow third-party applications to communicate with SAP system data. The issue came to a head in February 2017, when a UK court ruled in favour of SAP in the case of SAP vs Diageo.

The latter had allowed customers and members of its customer support team access to SAP data via third-party systems – a licensing breach that ended up costing it £54 million. Naturally, other SAP customers were worried that they too might be at risk of litigation – concerns that SAP has sought to address with a new document-based pricing model.

Deloitte’s Global CPO Survey 2019 found that 57% of CPOs see quality of data as one of the main barriers to the effective application of digital technology in procurement. It’s often said that one of the benefits of all in-one solutions is the fact that data on areas like business spend or supplier risk is collated, stored and accessed in a single place, as opposed to ending up fragmented across several best-of-breed solutions.

A more direct approach is to seek out a specialist supplier whose entire business is focused on data quality and deploy their system to provide this all-important bedrock. So is that the best way to address the data quality issue? Both best-of-breed and all-in-one solutions need clean data to carry out advanced analytics on spend, fraud, contracts and supply chain risks, and identify areas where savings could be made.

The future of procurement software

The Icertis platform, for instance, uses artificial intelligence to digitise third-party contracts and analyse past negotiation history to provide insights for improvements; this shows that cutting-edge technologies are increasingly accessible and affordable for CPOs.

Many procurement solutions now also have extensive application programming interface (API) functionality, which allow users to customise and enhance their solutions according to industry, region or simply personal ways. Mr Anderson of Tradeshift suggests that the idea that a tool can meet the needs of every user – from the engineering team to the sales office in China – is ridiculous.

The future of procurement software may therefore look a lot more like business-to-consumer (B2C) software: an Android-like environment that allows users to install and delete thousands of different applications, all running on the same underlying master data, with zero disruption to business processes.

The daunting language of APIs in procurement software is being replaced with phrases such as “app store” which signifies not only simplicity but empowerment. It signals that mixing vendors is not an option restricted to firms with a big IT department or unusual requirements, but is a normal and straightforward choice for firms who just want to get the job done well. There’s still some way to go, of course. But for procurement professionals navigating an increasingly complex software market, that future may come as a welcome relief.

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