According to Gartner, North American companies recently spent $1.4-billion (R16.8-billion) per annum on sourcing and procurement applications. For their investment companies seek two fundamental benefits: lowering costs for the goods and services they purchase; and making their employees more productive.
However, are these companies receiving their money’s worth?
A survey conducted by the Topline Strategy Group (TSG) suggests that while some companies are receiving their money’s worth, many others are getting nothing for their investment.
Only 28% of respondents to TSG’s survey indicated that their systems made them more productive. The remaining 72% indicated that their systems make them ‘more productive, but could be better’ or their systems actually make them ‘less productive’.
Based on the survey feedback, TSG identified five rules for deploying a successful and smooth sourcing and procurement systems.
1. Choose the right software
When the software aligns with real-world business processes, tasks that were previously time consuming (such as analysing bids, drafting contracts and improving requisitions) can be accomplished more quickly, making employees far more productive.
Choosing the right software might appear to be simple and an obvious driver of success, but doing so is a challenge and many companies fail to achieve this goal. In the graph alongside, the two most frequently cited sources of dissatisfaction were:
• The user interface is convoluted and it takes more time to do things than it should.
• The system lacks critical features that require manual workarounds.
Respondents indicated that they value depth of features more than just ease of use. Meaning that users would rather have software with the features and functions they need even if it was a little harder to use.
Together these two findings suggest a best practice for successfully selecting the right software:
• Identify a small set of critical business processes and functions that the system has to support; the ones that will drive the greatest increases in productivity. Make those deal-breakers. If the system cannot handle them, then it is off the list.
• Have the vendors actually demonstrated that the software can support those critical processes as part of the evaluation process? Then, run through them yourself to learn quickly whether the user experience is enough.
2. Do not get caught up in vendor standardisation
The study found that there is often a considerable productivity downside when selecting one vendor instead of choosing the right software. The study also discovered that single-vendor benefits are often smaller than expected.
In theory, having a common user interface across all sourcing and procurement applications seems to reduce training needs and simplify user tasks. In practice, applications like contract management, spend analytics and e-procurement are so dissimilar that interfaces even from the same vendor are substantially different.
The actual level of integration and user interface consistency across modules, even for ERP vendors, does not quite live up to the promise. This is because most source-to-settle (S2S) suites have been assembled through acquisition.
Many suite vendors have some applications that are best-in-class, but others just round out their product offering.
3. Invest in implementation
Another way to phrase this rule would be “you get what you pay for”. Some companies who are happy with their systems hired a third-party consultant at a cost of $1.5-million (R18-million) to implement their system, whereas other companies implemented it themselves by dedicating people instead of paying for services.
While the type of organisation that performed the implementation did not make a difference, how well that organisation performed – which correlates highly with the level of investment – mattered a lot: 73% of the companies where the implementer “did a great job and added a lot of value” were ‘extremely or very satisfied’ with their systems, while only 12% of companies where the implementer “didn’t set us up for success” were ‘extremely or very satisfied’.
4. Frequently update and improve the system
There is always a long list of ways the system can be improved, and even minor improvements have the potential to drive substantial productivity enhancements. A company that replaced an ERP-based spend analytics application with a new software as a service (SaaS) system described the value of regular improvements this way: “with our installed ERP system, we were always three versions behind and nothing ever got any better. With the new system we are always up to date”.
Whether the system uses SaaS or installed software typically separates those that are updated regularly from those that are not. While practically all SaaS systems are updated automatically by the vendor on a regular basis, companies with installed software can go for years between updates.
5. Choose software that is easy for casual, occasional users
This rule is critical when selecting a system for sourcing and procurement professionals. But when it comes to serving the hundreds or even thousands of people who occasionally use the system, routine tasks such as making purchases, approving purchasing and reviewing reports require that ease-of-use moves to the top of the list.
With billions of dollars in employee productivity and cost savings on the line, every company should consider the findings of this TSG study when acquiring, deploying and managing sourcing and procurement systems.
TSG surveyed 241 sourcing and procurement professionals from 201 US companies with $500-million or more in annual revenue. These participants rated 426 individual deployments of sourcing and procurement systems across five application areas: spend analytics, supplier information management, e-sourcing, contract lifestyle management and e-procurement.
Adapted from a white paper ‘Optimising your Sourcing and Procurement: Five Simple Rules’, published by Topline Strategy Group. Image courtesy of Topline Strategy Group