Over the last couple of weeks, I’ve discussed the question of suites vs. specialists in the procurement technology space. As I mentioned in the first article, it’s not an either/or question, but rather (in the vast majority of cases), a question of how much of a suite you should use and how you should complement it with specialist solutions.
In the second article, I explained the benefits of a suite approach, and in the third article, I did the same for the specialist approach. In last week’s article, I explored the factors that determine how you find the balance between the two approaches by discussing the impact of your spend profile.
This week I will look at the final factors you should include in your decision-making process. So, without further ado.
Total Spend
Your total spend is an important factor because it determines your budget. Business cases for procurement technologies are nearly always dependent on how much external spend your organization has. The exception here is regulatory requirements that force investments (which don’t require a business case). Examples of this include e-invoicing in some countries and certain reporting requirements. But the value of the core S2P modules is directly (e-sourcing and e-procurement) or indirectly (CLM, supplier management, spend analytics) related to your spend.
If your spend is on the very low end, it’s unlikely that you have a business case for a full suite. In this instance, you are more suited to focusing on specialist vendors in the areas you can justify investing. While it’s not ideal, you can likely do your spend analysis manually or in your BI tool, if you have one. When it comes to e-sourcing some vendors allow you to buy this on an event basis, meaning you don’t have to commit to recurring licenses for a certain set of users. Basic e-procurement and AP functionality are sometimes found in ERP or financial systems. But be aware that the flexibility and ease of use of these solutions are often limited. So, if your employees who create POs and/or approve invoices are not frequent users of your ERP or financial system, it makes sense to look for a dedicated solution for this.
As your spend grows or if your spend is higher to start with, it begins to make sense to look at suites. The suite modules are good enough to have a big impact on your procurement operations and it’s easy to expand into the next module(s). But beware of doing too much at once unless you are very confident in your implementation and change management skills. Focus on one module at a time.
My generic recommendation on the order of implementation is to start with spend analytics to gain the full view of your spend and identify some good opportunities for sourcing. Next is e-sourcing where you can quickly capitalize on the identified sourcing opportunities to build momentum for your transformation. The next module depends on your spend profile and could be either P2P, CLM, or a services procurement-specific solution to capture the savings from your e-sourcing events. But this order is obviously subject to any specific needs your organization might have.
The bigger your spend gets, the more you need to start looking at specialist solutions. Depending on your maturity (discussed below), you have likely made investments in the core modules that meet your needs, and in some cases a collection of ERP modules and specialists. If the latter is true, consider a business case for replacing existing solutions with a suite. However, if existing solutions are ample, consider exploring specialists to drive more value in the spend categories that are not already covered. Bigger spend means you have a better business case to add solutions despite additional costs for integrations. This may also be an opportune time to replace suite modules if significant capability gaps exist.
Procurement Maturity
The maturity and readiness of your procurement organization are also factors you need to consider. There is often, but not always, a correlation between the size of the total spend and the procurement maturity. But there are exceptions to that, especially in fast-growing companies where procurement is not a priority or where procurement hasn’t been able to keep up with the company growth or lacks technology investment.
At the bottom end of the maturity scale, where key decision-makers have a low understanding of procurement, you will need to quickly prove the value on a limited budget. In the case of low spend, for example, you can probably get away with a manual spend analysis. This makes e-sourcing a good starting point as you can rapidly set up and execute a sourcing event, and if you pick your spend category correctly, you should be able to show savings quickly. Standard e-sourcing is fairly commoditized today. Thus, from a feature perspective, it doesn’t matter if you pick a suite module or a specialist solution. However, many of the suite providers will not be interested in selling you a solution for a couple of projects and a handful of users. You are much more likely to find specialist providers willing to sell you access on a project basis, as mentioned earlier.
If you have a stronger mandate but are still an immature procurement organization, you are better served by a suite provider (unless your primary focus is on direct spend or services). Again, as mentioned previously, suite modules are likely good enough to improve your procurement operations. As you mature, you can re-assess if the suite modules meet your requirements or if they need to be supplemented by additional specialist modules or simply replaced. If you can make a business case for a full suite and have the ambition to drive a more holistic digital procurement transformation, you are better off finding a suite that fits — even if it’s only one module.
More mature organizations have made investments ensuring the “low-hanging fruit” is addressed. To extend spend management into areas of the organization with more specific needs, specialists are needed.
Mature organizations are also looking for the next opportunity and exploring how new technologies can deliver even more value. This means that the acceptance of smaller specialist providers needs to be higher. In these cases, it’s advantageous to have more influence on solution providers’ product roadmaps, ensuring your interests are met. This is easier to achieve with a smaller specialist provider.
Key Stakeholders and Organization Structure
The final factor discussed in this article (and series) is that of the procurement organization and the key stakeholders.
In many manufacturing organizations, direct materials procurement is organized separately from indirect procurement. Direct materials procurement often reports to the COO while indirect sits under the CFO. In some cases, there are dotted lines to connect these different procurement departments, and, in the best of worlds, there is a center of excellence (or similar) that owns procurement digitalization, process development, talent management, and so on. When that’s not the case, decisions around procurement solutions are usually made independently. This can make the decision easier since there are fewer categories of spend (see last week’s article) to take into account, but this can also create unnecessary complexity and duplication. At any rate, direct material procurement professionals are key stakeholders to have when picking procurement solutions. What works for indirect procurement does not always work for direct.
Another, more horizontal, crucial stakeholder department is legal. Surprisingly, the legal department also works with contracts unrelated to procurement. Just because it makes sense from a procurement perspective to include contract management in a suite, this doesn’t mean it makes sense for the legal department. And it’s unlikely the legal department can be forced to use a solution it doesn’t want to use.
Bigger organizations might have dedicated or even embedded legal resources for procurement. In these cases, the legal counsels likely only deal with procurement contracts, so a separate CLM solution for procurement might not be an issue for them. But even so, it might be better to have one single CLM solution for the entire company because it’s unlikely that the CLM module of a S2P suite is the answer. Thus, ensure to include the legal department and its requirements before deciding on whether or not to use a suite module CLM or a standalone, specialist CLM solution.
Finance is another critical stakeholder, especially since procurement is often part of the finance organization. In this context, it’s the line between procurement, AP, and treasury that is important to consider. Over the last couple of years, P2P started to include actual payments. This extension into payments, in my opinion, is driven by suite providers to increase their addressable market. Payments are typically owned by treasury, which might not be interested in deploying the payment capabilities of an S2P suite just because procurement thinks it’s a good idea. Theoretically, it makes sense to include both AP and payments in the P2P process but you have to ensure all invoices and payments can be managed in the same solution (within a suite scenario)and include AP and treasury in evaluations and decisions around the latter half of the P2P process.
Series Recap
Wrapping up our series, suites are not inherently better than specialists or the other way around. Each organization needs to find the right balance for itself based on:
- Spend profile
- Total amount of spend
- Procurement maturity
- (Non-procurement) Stakeholder needs.
There are likely additional factors that will also impact the decision in your specific organization and context. Thus, cross-functional collaboration is critical during the evaluation and decision-making process.
This wraps up this mini-series on the ever-present question of suites vs. specialists!
RELATED RESEARCH
Magnus Mondays: The Proliferation of Procurement Solutions
Magnus Mondays: Procurement Tech — Suites vs. Specialists Part One (Framing the Decision)
Magnus Mondays: Procurement Tech — Suites vs. Specialists Part Two (Home Suite Home)
Magnus Mondays: Procurement Tech — Suites vs. Specialists Part Three: I Wish I Was Special
Tagged in: Chief Procurement Officer, CPO, Magnus Bergfors, Magnus Mondays, Procurement, Solution Providers, Technology
