From manual procedures to automated procurement systems, identify your process maturity level to advance your procurement process.
Procurement tools: Best-in-class software vs ERP modules
Procurement is a critical and strategic business function that has the ability to impact corporate profitability. And one of its key decisions that every company must face is whether to choose an ERP procurement module or a purpose-built procurement tool.
Today, almost 90% of large organizations use a dedicated procurement tool, and 86% of them leverage an e-procurement solution. Meanwhile, only around 20% are using a procurement module that’s part of their current ERP.
This points to a clear preference for using a procurement-specific platform over an ERP module for its simple deployment and effective coverage of all procurement requirements, resulting in an easily-maintained strategy throughout the purchasing process.
When comparing between the two options, it’s important to consider which platform will drive the best value for your business and support digital transformation, efficiency, risk management and cost control.
Is your ERP agile enough for procurement?
Selecting your existing ERP’s add-on procurement functionality might seem like the path of least resistance, but it’s often not the best decision for a strategically important function that can drive growth and resilience for your business.
The first reason for this is ERPs are not designed for procurement. In fact, they’re not designed for end users. Their core software components (like customer relationship management, finance and accounting, human resources, supply chain management, etc..) were created to help back offices manage all their resources. They were then pushed out to end users as a necessity and natural development as organizations scaled.
This explains why ERP functionality falls short when handling complex procurement processes. They lack the required flexibility and user experience to effectively analyze data, ensure cost control and deliver savings.
While options exist to optimize modules, customizations are exorbitant and frankly, not worth the cost. Even with a strategy in place to implement a new module, ERP implementations fail 67% of the time. Businesses will categorize their ERP implementation as a failure for one or a combination of the following reasons:
- It costs more than anticipated in the long run
- The completed ERP implementation takes longer than expected
- The ERP implementation does not deliver the desired results
Lastly, while both options might offer similar functionality, another important consideration is how the features are delivered. For instance, many businesses may already have an ERP system with basic procurement capabilities. However, project sponsors and the IT department will find themselves continuing to remind employees to use it. Why is it that employees are not intuitively reaching for the tool to complete their purchasing requests?
A procurement tool that’s lacking an intuitive UI, a convenient mobile app, and streamlined multi-level workflows that define employee roles and responsibilities will struggle to drive healthy adoption levels. And adoption is the determining factor in the success of any software investment. For this reason, sourcing a more user-friendly third-party cloud procurement system could provide more strategic business outcomes with process and spend optimizations.
Let’s explore some of the common pitfalls of add-on functionality.
Purchasing goods and services for and on behalf of a business doesn’t only occur in the procurement department, these activities extend to the edge of the organization. Purchasing ERP licenses for each user or department is costly and introduces additional hurdles like getting non-finance users to adopt complex ERP processes.
Poor user experience
When a company operates from multiple branches or locations with growing departments, purchasing can escalate to unmanageable proportions. Without a framework to guide and track individual users' spending activity with internal policy, budget control and approval workflows, expenses can skyrocket and eat into your bottom line.
An ERP add-on with a poor user experience will result in users and suppliers misusing the platform, or not using it at all. This creates a huge amount of low-value, non-strategic work for internal procurement teams as they spend a majority of their time correcting the consequences of poor adoption.
Limited procurement functions
While ERP solutions offer add-on procurement modules or functionality, they handle very basic spend management needs. If you’re looking for ways to simplify purchase requisitioning, expense and approval management, your ERP might not be adequate. Select a solution that’s cost effective and scalable, the more users that have access to your procurement solution, the more accountability and spend under management can be achieved
To effectively reduce indirect procurement costs, it’s essential to equip all staff with purchasing and expense requisitioning capabilities on mobile devices, wherever they are. Your solution of choice should route requests through multi-level approvals, ensuring budget and policy compliance along the way. So your employees gain not only automated process efficiency, but a proactive framework that guides them to spend responsibly and make informed decisions.
An effective procurement solution should mobilize and automate procurement processes across departments, geographies, and operating models, a function that legacy ERPs are simply ill-equipped to facilitate.
ERPs are ideal for connecting finance, accounting and HR functions and providing an effective data repository. They fall short, however, when it comes to the levels of flexibility required in procurement.
ERP systems can’t always provide the transparency companies need. Not all ERP systems are able to classify or cover complex cost allocations. Having the ability to analyze spend by category, from departments, budgets, and suppliers, right down to user level gives you the opportunity to identify saving opportunities.
Supplier management is a great example of this. Although you may have thousands of records in your ERP system database, are you able to draw strategic information from these records?
With an optimal procurement tool you should be able to discover:
- Price variation by supplier
- Spend by supplier to improve your negotiating position
- Supplier diversity progress
- Analytics to consolidate a list of authorized, high-performing suppliers
With enhanced visibility and embedded analytics in a cloud-based procurement tool, you can drive more value, be more strategic and increase savings.
Lastly, an ERP module is of no use if it always leaves your teams two or three steps behind, or if it’s too difficult to roll out to all employees.
For instance, if requesters must email or complete a form and bring it to a super user whose role is to submit all requests, this creates an extra step for employees wanting to purchase goods or services. This coordination wastes time and increases the chances of an employee performing a noncompliant purchase.
Or requesters may even take advantage of a free-form request and not specify their exact item and supplier, leaving the buyer to do the extra manual work of finding the optimal purchase. By not avoiding occurrences like these, buyers can spend 80% to 90% of their time specifying, correcting, and re-submitting the requisitions of others. Once again, reducing their capacity to work on strategic activities that add value to their organization.
Consider agility and accessibility when choosing procurement software
2020 Certainly taught us the value of remote accessibility. Cloud procurement software equips your business with the mobility it needs to continue with business as usual, while providing a framework that guides purchasing decisions and maintains a cost-conscious spending culture, regardless of where your team is operating from. By giving your staff access to a mobile procurement application, you can say goodbye to out-of-office delays, approval bottlenecks, lost receipts and rogue spend.
More and more organizations are prioritizing cloud procurement software that can yield a faster ROI. Procurement software can be deployed within a few short months and results can be tracked in quick succession.
Not to mention, solutions are affordable, scalable, and can complement and extend your ERP with advanced procurement functionality and increased saving potential. So, you no longer have to run your operations with multiple inflexible ERP modules.
Considering purpose-built procurement tools to give your business the extra horsepower required to achieve procurement efficiency and strategic cost savings? Request a demo of Fraxion’s true cloud solution today.