The impact of Cloud based Procurement in 2016 and beyond

Published January 2016

Cloud Based Procurement

As 2016 kicks off it’s worth taking a looking at the technologies that are continuing to disrupt the traditional procurement space. For procurement professionals and forward thinking procurement service providers, staying ahead of technology is critical to achieving continued success.

Recently Procurement Leaders invited 3 specialists in procurement technology to post their predictions for 2016 and beyond. As their comments firmly align with our views at Claritum, I thought it worth expanding on this theme.

GEP’s Puneet Goel highlighted that traditional on-premise procurement software no longer meets the expectations of today’s procurement professionals.

At Claritum, we’d agree with Puneet. There’s no arguing that cloud based platforms are increasingly dominating the space, with continued significant growth. Enterprise procurement professionals, used to the challenges of on premise, find cloud based platforms quicker and easier to deploy and gain adoption, lower cost to implement and easier to integrate into supply chain workflow.

With most cloud based platforms, ease of use is a critical benefit. This means users find it easier to adopt than traditional enterprise software and quicker than their old manual habits resulting in utilizing the platform more fully. Rapid adoption reduces risk of project failure, maximizing ROI and therefore cloud will continue to outpace on premise in 2016 and beyond.

For younger employees entering the workplace, sourcing products and services needs to be as simple as “liking” a friends new pet, but with all the powerful controls needed to enforce best practice and compliance. And as this new wave of social media savvy users become the majority in the workplace, they expect their business software to be as simple and quick as their consumer applications.

Likewise, with increasingly mobile and distributed workforces, mobile technology is becoming a basic requirement for procurement professionals. Mobile enables faster decisions and better communication and will accelerate in 2016. With the ubiquitous access to our smart phones, new ways of specifying requirements becomes easier. As an alternative to typing your needs into a desktop computer, why not add a photograph the product you need to replace or record an audio description of your requisition? Why wait for a line manager to arrive at the office to approve an urgent PO, when they can green light it before breakfast on their phone.

We’ve seen this in action with one of Claritum’s client’s based in Asia. On a recent 9 hour flight the client received an urgent PO approval request for a product critical to manufacturing. The alert included sufficient detail to allow the PO to be approved within minutes, resulting in same day delivery. Without mobile access, the product would have been delivered 4 days later with resultant loss in production. So, get connected in 2016.

Puneet also highlights the impact of big data. From our experience at Claritum, we’re constantly amazed at how little value is currently extracted from data. This is a missed opportunity.

There are still plenty of CPO's reliant on external consultants and spreadsheets to tell them what the company spend last year. How very quaint.

Cloud based data room management systems are largely built to capture and present structured data in an actionable format. So users can view powerful dashboards and analysts can dive deep into the data and identify real insights – all in real time. Combining the rapid adoption and scalability of cloud based platforms and the abundance of data gold dust, in 2016 procurement professionals will finally get the granular visibility of their expenditure and supplier performance that has eluded them for the last 20 years.

Data is also valuable at another level – that of the wider marketplace. Cloud based platforms enable an aggregated view of transaction level data, so its possible to get a global sight of trends, benchmark real timing pricing, compare supplier performance with your peers, monitor risk, spot exceptions and see the bigger picture. This appears to be untapped value for many procurement experts and shows the real power and value of cloud based procurement technologies.

Think about this. Facebook’s valuation (17x revenues) is partly based on its ability to target advertising based on the connections between its users – and yet B2B cloud based procurement platforms capture Billions of Dollars of requisitions, bids, approvals, orders, deliveries, invoices and payments in real time, so shouldn’t they be more highly valued than the current 7.2x revenues of the top Cloud based ERP & Supply Chain providers[1]?

Another evolution that cloud has facilitated is joined up thinking. No more departmental silos of information, forget the excuse that different geographies use different platforms and think again when your on premise vendor says their software doesn’t allow a single streamlined source-to-settle process.

Cloud based platforms are typically process focused, bringing together sourcing, supplier management, catalogs, procurement and even invoicing. And best of all, much of this highly integrated capability can be switched on, or off, as the business requires. So 2016 will see the ongoing progression of spend management platforms covering source-to-settle lifecycles.

At Claritum, we’re seeing a significant shift away from simplistic insourcing or outsourcing to a much more blended approach. Major outsourcing deals may continue to flourish in some markets and categories but emerging technologies such as cloud and mobile, level the playing field. Suppliers can provide product expertise, partners can collaborate to drive innovation and buyers can become advisors, without the costs and risks of selecting a binary insource or outsource option. Why not access expertise on demand from where-ever it sits in your partner eco-system? As we enter the second half of the decade, businesses will ‘right source’ on a transaction by transaction basis.

Another leader in this space who posted their thoughts recently is Ariba’s Emily Rakowski. Again, Emily’s comments mirror much of our thinking at Claritum.

For example, Ariba is well known for its large network of trading partners. There are an increasing number of alternative supplier networks available, across more and more categories of expenditure and geographies. As these marketplaces mature, businesses can reduce their reliance on generic online searches and tiresome navigating through multiple vendor websites to find the information needed for purchasing. Gartner’s 2015 Hype Cycle for Procurement and Sourcing Solutions shows Procurement Networks and Supplier Portals reaching the “Plateau of Productivity” within 2 years.

These supplier networks not only provide access to large numbers of highly qualified suppliers, more and more suppliers are deeply integrated. In the not too distant future buyers will be able to ‘plug-n-play’ directly into supplier order processing capabilities without wasting time and money paying hefty professional services fees for custom integrations. The digitized supply chain arrives in 2016.

With digitized supply chains comes, what Bill Gates described in his 1999 book “Business @ The Speed of Thought”, a digital nervous system. Think frictionless “supply tube” rather than a supply chain with multiple links. This means that an order placed by a customer can seamlessly notify production, warehousing, shipping, customer services, billing, inventory and all the other functions required with no manual intervention and zero latency. Today’s systems can predict stock replenishment requirements early, automatically raise the requisition, check approval limits and issue the order without manual intervention. Or notify a retailer instantly when a localized incident in a factory in the Far East may impact on product availability and therefore affect margins. We’re getting closer….

As organizations release procurement expertise from transaction level involvement to collaborate with supply chain partners, reduce cost, improve efficiencies, businesses will see increasing levels of profitability, innovation and value.

Emily writes in her post that CPOs will increasingly collaborate across functions to deliver greater value for the organization. We agree. For example procurement platforms can deliver real time visibility into whether an invoice is authorized for payment and enable early settlement by automatically notifying supply chain finance to pay the supplier in order to receive early payment discounts. This year, connect the dots in your organization by collaborating with other business functions.

Coupa’s Rob Bernshteyn also shares some great comments. He says cites a Gartner article predicting the 2016 will be the year when “heavily customized on-premise ERP implementations are relegated to legacy status”. Rob suggests that companies will increasingly opt to fill shortfalls in their technology stack with complimentary cloud based platforms.

In the next 5 years, Rob expects forward thinking businesses to replace their traditional on premise ERP with cloud based enterprise platforms. At Claritum, we think Rob is right. This step would certainly provide significant competitive advantage to those who adopt this approach through increased spend visibility, better controls, maximized efficiencies, locked in savings and optimized flexibility.

So, in conclusion, the continued rise of cloud based solutions is enabling a revolution in procurement technology. As Puneet, Emily and Rob predict, senior procurement leaders can now unburden themselves from the constraints of traditional on-premise and deliver greater value to their organisations locally, nationally and globally.

With thanks to Procurement Leaders posts by: Puneet Goel is VP, product management with GEP Worldwide, Emily Rakowski is global vice president for Ariba, an SAP Company, Rob Bernshteyn is CEO at Coupa Software

[1] Software Equity Group, The Software Industry Financial Report, Q4 2015