As enterprise IT priorities move beyond cost cutting to revenue generation, their use of procurement technology is also shifting. New technologies are enabling more strategic source-to-pay (as opposed to simply purchase or procure-to-pay) systems for both general and IT procurement. Complete supplier relationship management (SRM) is increasingly viable, and the optimization of supplier choice and management is now a strategic enabler for the quicker decision-making and deployment that is central to innovation. Some familiar tussles in organizational decision making are emerging with the new technology as well.
Procurement technology usage trends
There has been a clear adoption path in procurement IT from transactional spending analysis to mid-level procurement management and, ultimately, strategic sourcing, supplier relationship management, and asset life-cycle management. As one recent study shows, spend analysis, which tends to be an early investment in the procurement technology adoption cycle, has stalled at 69% adoption, with contract management not far behind at 64% adoption. But the more strategic e-sourcing and supplier and procurement management are now among the top priorities for procurement IT adoption, and e-sourcing has gained the most investment interest since 2012, at 11% (with spend analysis and contract management following at 7%). An earlier, 2012 study, shows this shift more dramatically, with transactional procurement and spend analysis dropping from #1 and #2 in rank for current and in-process implementations to #5 and #4 in rank, respectively, for planned or considering implementation. Vendor and contract management instead had led plans in 2012, with sourcing in the #3 position.
The new technologies driving this adoption include the usual cloud, analytics, and collaboration suspects, with mobile, at this point, not as impactful.
As seen in one case study this week, speed of deployment is a factor in the selection of cloud-based systems. More significantly, Armstrong World Industries’ implementation of a cloud-based solution from Coupa was recently reported to have cut by more than 80% the time required to approve a supplier—from an average of 80 days to 13 days.
One recent study shows that data management and web-based/self-service tools for internal employees are tied as the top procurement technology priorities for 2014, at 55% each, with BI/analytics and collaboration tools not far behind (at 52% and 41% respectively).
New technology, capabilities, and ease of use are combining to drive a shift from traditional ERP (used by two-thirds of procurement organizations) or lower tech (e.g., spreadsheet, email) solutions to new, specialized, cloud-based systems.
The new capabilities that these procurement IT systems bring include greater agility, the analysis of prediction of procurement trends, new contract and supplier risk management tools, and improved ease of use and collaboration out to the end-user level.
Not surprisingly, this new procurement IT is also factoring into corporate dynamics. Corporate procurement departments are looking to gain influence within their organizations. More than three-quarters of procurement officers surveyed listing the expansion of procurement’s spending influence as their top priority for 2014. (Supplier innovation was their second most frequently identified priority.) This is a shift from 2013, when cost reduction was their most commonly named priority. Moreover, 17% of the procurement officers reported that they plan to acquire cloud-based procurement technology without IT departmental approval.
Procurement problems writ large
Although all procurement within government has been notoriously inefficient, the government experience really only reflects the inefficiencies of bureaucracies writ large. Thus, it is not surprising that large bureaucracies have been especially bad at managing IT procurement and oversight as the recent debacle with the Affordable Care Act web site recently highlighted.
In an April 30th hearing, Senator Claire McCaskill vented frustrations with Department of Defense IT procurement when addressing the Pentagon’s head of procurement:
“You’re terrible at it, just terrible at it. I would use an unladylike term about how bad the Department of Defense is at acquiring IT, but I don’t want to do that as a United States Senator.” With an observation that most corporate employees could appreciate, she continued, “Your acquisitions process has so many steps, and it’s not flexible and it’s not nimble.”
IT procurement is especially challenging and the DoD is not the only agency with such problems. According to a report from the General Accounting Office, 30% of all federal IT investments show up on the Office of Management and Budget’s IT dashboard as needing attention or having serious concerns. Not surprisingly, therefore, the General Services Administration is looking to follow industry by leveraging new procurement technology.
IT department challenges
The challenges for enterprise IT departments are thus threefold. They must
- Identify and deploy the right procurement technology to make supplier relationship management from sourcing through the asset management life cycle strategic, just as customer relationship management has become strategic on the other side of the business;
- Work cooperatively and proactively with non-IT managements that are gaining influence and power with the use of the new, especially cloud-based, systems; and,
- Assure that its own IT procurement processes enable the rapid tech selection and deployment, as well as continuing supplier relationship management, that is needed to provide nimble IT management in the current environment.
That is, procurement IT and SRM are not simply solutions to support through the enterprise, but also solutions that must be optimally used within the IT department to best support technology use across the enterprise.