During my years as an analyst, I’ve heard “We want to be the Salesforce of procurement” many times. Yet, procurement is one of the few spaces that lacks truly dominant solution providers. In today’s article, I’ll share my thoughts on why this is the case.
In most enterprise software application areas, one or two dominant solution providers tend to emerge over time. Examples include SAP and Oracle in the ERP space, Salesforce in CRM, and Workday in HCM. But in the procurement space, we still haven’t seen this. Sure, Ariba (now part of SAP) and Coupa have grown significantly larger than most of the competition but are still far from as dominant as the vendors listed above.
One of the first times I met with Rob Bernshteyn, Coupa’s ex-CEO, he mentioned this fact as one of the reasons why he joined Coupa (which at the time probably had less than USD$10 million in turnover). He had worked in the HCM space that was dominated at the time by SuccessFactors (now part of SAP), Taleo (now part of Oracle), and the rapidly growing Workday, and saw the procurement and supply chain space as the only major corporate function that lacked an established leader(s).
Why is this? Surely the procurement technology market must be of similar size to the HCM or CRM markets. After all, all companies buy stuff. Well, as most of us know and have experienced, procurement is complicated and presents several challenges.
Challenge #1: Most Organizations Buy Just About Everything
While companies tend to sell a limited set of related products and services, they buy just about everything — all kinds of services, contingent labor, components, IT hardware and software, , office materials and real estate, and so on. Most of these categories have specific buying processes and require different approaches and capabilities to be properly managed.
Challenge #2: Sourcing Is Different From Buying
Even within the same category of spend, there is a big difference between sourcing and buying. The former involves defining strategies on how to best manage categories and how to source (i.e., find the best possible supplier at an optimal total cost). I would argue that sourcing should be split into category strategy management and the execution of the sourcing strategy defined by the category strategy. The execution of the sourcing strategy is typically covered by strategic sourcing solutions that consist of one or more spend analytics, eSourcing, contract lifecycle management, and supplier management modules. For category strategy management, there is less support, as discussed in this Magnus Monday article, even if solutions and modules are emerging as well.
The latter (buying) is transactional and focused on how to request, order, and pay for the goods or services required. Here we find P2P solutions, ERPs, ePayable automation solutions, VMS’, and myriad other solutions that can create purchase orders.
While these activities are related to each other and require the same data to an extent, , the workflows and capabilities needed to support them are fundamentally different.
Challenge #3: Everyone Is a Buyer
Most companies have dedicated procurement departments (and if they don’t, they clearly should). This doesn’t change the fact that virtually every employee is a buyer. The needs of all these buyers, and the frequency of their purchases, vary drastically depending on role and location. Combine this with the first complication (companies buying just about everything) and serious complexity results. Getting infrequent, casual users, to understand where and how to buy is a massive challenge. This has led to a fairly new class of solutions called intake management and procurement process orchestration (see this article for more information).
Challenge #4: Rogue Buying Is a Thing
The final challenge I’ll discuss is the simplicity of buying stuff and expensing it. Yes, companies can implement “no PO, no pay” policies, but there are always parts of the organization that manage to circumvent this. For other parts of the business, many actions are not possible outside the dedicated systems. Or the number of impacted users is much smaller and easier to manage.
(As a side note, I’m not a fan of the “no PO, no pay” policy and have written extensively on that issue. I might return to that subject on CPO Rising in the future.)
Can Platforms, Networks, and Intake Management Create a Procurement Mega Vendor?
Combining all these complications makes it clear that creating a holistic solution with high adoption rates is difficult in the procurement space. That said, progress is being made with platform approaches using app stores and integrated partner solutions, as well as new intake solutions to make life easier for end users.
But perhaps the biggest question is: Will anyone create a procurement network that delivers on the potential value in the approach and reach critical mass to unlock the potential of the network effect? I have my doubts but would love to be proven wrong.
RELATED RESEARCH
Magnus Mondays — Category Management: All Talk No Action?
Will 2024 be the “Year of Intake Management and Procurement Process Orchestration?”
CPO Rising Listicle: Unlock More Value with Five Category Management Benefits
