The Future of Procurement: Say No to Mediocre Technology
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Photo Can.Erdal by by The future of procurement: say no to mediocre technology Procurement faces a wake-up call as huge shifts in technology change everything, threatening to lead eventually to its automation. Companies have three options for embracing this major change. Today’s procurement technology After nearly is a complete failure 20 years of Business users hate it, procurement users loathe it, and even the technology vendors treat technology procurement functions as second-class citizens. In fact, after nearly 20 years of technology deployment, most deployment, most organizations still struggle to get a comprehensive view of their spend (and organizations still some struggle with generating a basic view of supplier and category expenditure). The systems struggle to get a are rigid, complicated, and only solve a fraction of procurement’s requirement. comprehensive Across the board, these systems slow progress and view of their hinder excellence instead of enabling it. For anything other than simple, prespecified, and pre-sourced spend. catalog-based purchases, for example, they do not help the user specify what’s required or choose the right supplier. They fail to support what the “should price” ought to be. And there is usually no systematic and embedded classification of what was actually purchased, allowing trends to be identified and managed on time. The result is an inability to effectively know where money is spent and with whom, much less an ability to strategically direct the spend. This puts procurement looking backward, when looking forward is of vital importance. The digital future for procurement has arrived. Based on our experience working with dozens of companies’ procurement areas, most are automating some portion of their operations and looking to adopt intelligent technologies. One company we work with plans to go to 100 percent automation within five years. Soon, procurement staff will be vastly reduced, and those that survive will do so because they already possess or are willing to learn new skills beyond those that are necessary today. This trend is already under way in other functional areas as automation adoption continues apace. The future of procurement: say no to mediocre technology 1 The problem with suites In response, companies such as Emptoris started making their own acquisitions to offer a broader array How did we get here? Today’s procurement tech- of functionality. Then SAP bought Ariba and IBM nology landscape is based on a linear concept of bought Emptoris, which solidified a trend convincing sourcing activities on the left and procure-to-pay people that bigger, broader suite solutions were the activities on the right, with analytics and governance way to go. Best-of-breed solutions could no longer wrappers (see figure 1). It’s a nice, neat package compete, though they often possessed better tech- that looks great on paper. Unfortunately, it reflects nology. Unfortunately, they lacked native ERP inte- little about the realities and complexities of day-to- gration and couldn’t provide more than one or two day procurement. services, which the market deemed a negative. These dynamics put price pressure on the point solutions, Procurement’s technology evolution dates back killed innovation, and locked customers into big suite to the early 2000s when a series of procurement solutions, which ultimately led to the collective dissat- start-ups, bolstered by the dotcom frenzy, sprang isfaction we see today. into the market to accelerate strategic sourcing activities. Companies such as FreeMarkets (reverse auction), Webango (RFPs), and diCarta (contract management) provided best-of-breed solutions that proved highly popular with users. Then the great suite migration took over as companies such as Ariba (then a separate company), SAP, and Oracle sought to extend their enterprise resource planning (ERP) systems into procurement, which started an acquisi- tion frenzy (see figure 2 on page 3) Figure 1 Traditional procurement process map Strategic procurement planning and Operational procurement performance management – “Upstream” – “Downstream” Spend monitoring and analytics — Project intake/pipeline — Initiative and resource — Spend analytics — Benets tracking — Compliance management management management Supplier E-sourcing Contract Supplier Requisition Payment information management performance/ management systems management — eRFx risk management (SIM) — Auctions — Contract — Requisition — Accounts warehouse — Surveys/ payable — TCO analysis — Purchase — Risk assessment — Contract scorecards order — SCF/ — Optimization — Supplier portal authoring — KPI tracking — Workflow e-invoicing — Supplier data — Dynamic — Compliance management — P-cards alerts management — Catalog — Dynamic management discounting Governance and management — Collaboration tools — Templates — Benchmarking — Best practices — Master data — Knowledge — Performance and industry management management management reports Notes: TCO is total cost of ownership. KPI is key performance indicator. SCF is supply chain inance. Source: Kearney analysis The future of procurement: say no to mediocre technology 2 Figure 2 Timeline of major activity 1995 1996 1998 1999 2004 2007 2012 2017 — FreeMarkets — Dot-com frenzy — Ariba — Proliferation — SAP acquired Ariba — IBM sunsetting founded acquired of suite Emptoris — Webango raises — IBM acquired in 1995 FreeMarkets solutions and directing $20M series Emptoris clients to SAP — Ariba A funding founded — Emptoris founded in 1996 in 1999 Source: Kearney analysis In the barren landscape left behind by the Enterprises have paid, and continue to pay, great suite migration (circa 2008–2010), smaller for multimillion-dollar contracts and multiyear companies such as Iasta, Bravo, iValua, and Coupa implementations for systems they hope will be “one continued to survive in the shadows of the giant and done.” If procurement later buys a new tool that players. But their market share and influence isn’t embedded in the suite, whatever innovation remained limited in scope. Meanwhile newer it promised goes by the wayside. Big suites end solutions such as CombineNet, Trade Extensions, up woefully underused, based on old architecture, and emerging analytics companies started to open and functionally inadequate. Don’t blame the tech up possibilities and suggest that source-to-pay vendors entirely, however, because the collective suites were not the promised perfect solution. procurement industry has turned a blind eye to Combined with procurement performance the phenomenon. Even top-flight benchmarking management, these new entrants created the firms base their market evaluations on a rigid and wrappers that append the suite solutions. misguided framework focused on the breadth of offerings and completeness of vision instead of In recent years, there has been a load of new looking at actual business user satisfaction (as acquisitions by Determine, Coupa, Zycus, and represented with Net Promoter Scores, for instance). Jaggaer. They, too, have bolstered their suites so that the market now resembles a bunch of lumbering giants clubbing one another at the expense of the individual user’s experience. The future of procurement: say no to mediocre technology 3 The one thing the technology has to do All this technology has become a means unto itself, a way to justify its existence in the world instead of solving the one requirement on which all of procurement should be based. Procurement technology has one job: to provide a robust yet easy-to-use system for transforming needed goods and services into value so that a company can excel at its own business. Such a system puts the procurement power in the hands of the user, rather than the user being at the mercy of the system or a rigid and unnecessary procurement process. The more users are empowered with full transparency and analytic insights, the more likely they will adopt the desired behavior. Most of us already know what this helpful and responsive system looks like. As individual consumers, we shop on Amazon and Alibaba, which give buyers broad selection, product specification, visibility into price, shipping options, warranties, returns, and customer support. We can compare alternatives and make a decision based on our needs. We receive deliveries instantaneously (such as digital content) or within hours or days with full accountability. Yet, for those who work in procurement, these same users go to work and experience the most archaic, rigid, poorly thought-out systems that fail to make these decisions for them. Procurement technology has one job: to provide a robust yet easy- to-use system for transforming needed goods and services into value so that a company can excel at its own business. The future of procurement: say no to mediocre technology 4 Figure 3 Start-up Description Investment Category (M) Selected start-ups to watch Tamr is a machine learning-based data unication solution . Analytics Bonfire is the leading next-generation competitive bidding RFx and RFx platform LevaData combines robust strategic sourcing techniques with Sourcing cutting-edge analytics and analytics Procurify streamlines purchases, gives optimized spending . PP Concord automates and supports the complete contract . Contract life cycle management Scout RFP is an innovative e-sourcing solution for . Sourcing companies in all industries and pipeline Xeeva provides next-generation, intelligent Sourcing procurement solutions Suplari uses cloud-based machine learning to quickly