Demand for procurement software on the rise


Large enterprises are back in the market driving big deals, while mid-market firms are implementing sophisticated procurement systems for the first time

By
Michael Koploy | March 11, 2011

Large enterprises are back in the market driving big deals, while mid-market firms are implementing sophisticated procurement systems for the first time.

Cloud computing is behind most of the positive trends in this market, including increased adoption, improved collaboration and new forms of application functionality.

I expect 2011 will be a strong year for the procurement systems market.



Demand is growing moderately as the economy improves
Heading into 2011, the economy has improved and business are spending more on software. Large enterprises and big deals are back.

At the same time, some of the most active buyers are mid-market businesses (ie, those with revenue of $100M to $750M).

Many procurement specialists who were displaced by large-enterprise downsizing landed at mid-market companies; in their new roles, these seasoned operators are pushing to implement sophisticated procurement systems. Cloud deployment makes that possible.

Meanwhile, many businesses that cut procurement headcount during the recession are choosing not to replace those workers as business improves.

Instead, these firms are seeking permanent increases in productivity by better automating the procurement function. The efficiency gained from procurement systems is reducing the need for human capital. Procurement systems vendors stand to profit.

The cloud is enabling procurement collaboration
Cloud-based procurement systems are delivering benefits beyond reductions in cost of ownership. In particular, procurement networks are allowing procurement specialists to better collaborate within and beyond their organisations.

Jason Busch of Spend Matters predicts that 2011 will see more collaboration between businesses’ procurement and finance operations.

"Purchase-to-pay and supplier performance management applications are two examples of how software is helping bring together cross-functional departments," he says.

Procurement specialists are also eager for social functionality that will allow them to network beyond their four walls. For example, when procuring print services, buyers can collaborate with vendors to keep presses running by scheduling print jobs during typical slow periods.

In that situation, a printer would be more than eager to extend discounted pricing. Going one step further, many specialists are reaching out to their peers at other organisations – sometimes, even competitors.

An example of this can be seen at exchange.ariba.com, where members can provide information and ask questions with the Exchange community.

Usability takes precedence over functionality
Buyers are demonstrating a preference for systems that have intuitive, well-designed user interfaces (UIs). In many cases, the simplicity of a modern Cloud-based system is preferable to a more feature-rich offering with a dated, complex UI.

"I would rather have a system that is user-friendly with fewer bells and whistles, than an advanced system that can’t be turned on," remarks Andrew Miller of ACM Consulting

This trend is reinforced by an influx of young employees who expect a UI like the sites they frequent every day: Google, Facebook, and Twitter.

The secret to winning over this generation of employees is to provide a system that is similar to their casual browsing experiences. Procurement software vendors are responding by mimicking the straightforward Web UIs of popular sites. Cloud-based vendors are at an advantage.

Demand is increasing for advanced sourcing applications
Buyers are adopting more sophisticated sourcing applications that enable them to evaluate suppliers against a more rigorous set of criteria.

These applications factor in quality, delivery, and reliability to identify the most advantageous suppliers.

As time has gone on, suppliers have have learned to exploit reverse auctions – using learned tactics and working with other suppliers to tip the scales in their favor. Software vendors are now producing systems that feature filtering beyond common qualifiers (eg, fixed price and shipping time) to return balance to reverse auctions.

The mainstream adoption of mobile apps also creates new opportunities to attack long-tail sourcing opportunities. One example is in delivery, where mobile allows for working with a more fragmented set of suppliers, such as a mom and pop shipping company in eastern North Dakota, US.

Instead of relying on UPS or FedEx, procurement can auction off the last 50 miles of a delivery to a local shipper, such as Ross – a one-man operation driving with his dog. Ross can receive a mobile alert in his van, bid lower that the big guys, and drive to Fargo the same afternoon.

Demand for spend analytics is strong as well
Executives are investing in spend analytics to evaluate how their business spends money, the state of their supplier relationships, and how forecasts compare to actual spending.

While many procurement systems offer reporting, these applications are often simplistic, cumbersome, and limited to data within that system.

Now, more vendors are providing more sophisticated analytic applications and the ability to personalize reports. Instead of one-size-fits-all reporting, users can customize their reporting and receive reports that analyze the most meaningful, useful data.

This results in analytics that actually provide useful information, rather than create information overload. These same systems can also draw data from a broader set of sources, creating a more holistic, meaningful view into corporate spend.

Contract management gaining traction
Fairly advanced procurement departments automate most of the purchasing cycle, but still push paper when it’s time to sign a contract.

Contract management is the last hurdle to cross to fully automate the purchasing process. It seems more procurement departments are ready to take on this challenge in 2011.

There is a lot of efficiency to be gained by moving deals away from paper contracts and into automated agreements. For example, contract management reduces bottlenecking or neglected contracts. Notifications can help speed along the process.

A number of pure-play contract management vendors have pushed the technology ahead, while large procurement systems vendors have taken notice and incorporated contract management into their suites.

Conclusion
As procurement applications become more usable and functional, businesses will make a stronger effort to integrate the systems into their workflow.

Look for procurement departments to go "all in" with new software systems in 2011.

If you are in a procurement department, is your company planning on investing in new software applications? What features are important to your business, and how will you make sure your employees are going to use them? Sound off below.

Michael Koploy is an ERP market analyst at Software Advice, a free resource that provides reviews and
comparisons
of
procurement software. The original article can be read at
2011 Market Trends Report: Procurement Systems.

Special thanks to Ellen Lasser of Energy Future Holdings, George Harris of Calyptus Consulting Group, Mark Trowbridge of Strategic Procurement Solutions, and Dan Plute of Material and Contract Services for additional insights for this article.

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