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Exploring the Procurement Tech Adoption Curve

Recently, I participated in an EBN Live Chat, and the wide-ranging discussion underlined for me the need for education and awareness on the benefits of technology adoption in procurement organizations.

The chat session focused initially on technology adoption. Zycus' newly published Pulse of Procurement 2014 study (registration required) was a primary focus, since it found that top performers showed a positive correlation between higher reported cumulative procurement generated savings and much higher technology adoption rates than their counterparts at lower savings thresholds. The survey of more than 300 global procurement leaders pointed to smart technology adoption strategies and solid business results achieved by top-performing procurement organizations.

  • Top performers reported more than 20% cumulative savings, and there is a clear correlation to their adoption of state-of-the-art tools.
  • At top performers, 63% of procurement staff are utilizing the tools. Just as importantly, these organizations have highest adoption by functional stakeholders, with almost 50% of the business users on board — two times higher than the rate of stakeholder adoption for lowest performers.
  • Companies have begun a shift away from enterprise resource planning (ERP) or homegrown/legacy procurement systems and toward specialized procurement platforms — increasingly favoring integrated source-to-pay (S2P) suites.
  • As a result, key procurement performance metrics are up dramatically from the 2011 study. For instance, contract compliance rates have risen 14%.

Now, let me share some of the common questions that I hear from the industry and that came up in the recent chat.

Is it finally the death of the procurement spreadsheet? I'm amazed at how many organizations are doing things manually. What percentage of organizations do you think are still early on the adoption curve?

In regard to spreadsheets for procurement, the death notices may be premature, but they are clearly on life support. Today, two-thirds of procurement organizations use ERP or legacy systems, but when asked about their investment plans, the same number said they will move to procurement-specific apps. Bigger picture: The clear trend is away from ERP/legacy systems for procurement and toward an integrated S2P suite from a best-of-breed vendor.

Why the shift? What is it that S2P suites do (or do better) than ERP can?

One thing that came through loud and clear in our study is that procurement groups are clamoring for an integrated view of all aspects of a supplier or a category, for example, instead of “point” solutions that give visibility only to transactions, not the overall process.

Are there lessons that smaller organizations can take from these big enterprises, even if they don't have a huge budget?

Of course, the Pulse survey skews toward large enterprises; more than 80% of the 300-plus respondents were from organizations with more than $500 million of annual revenue. Those enterprises can't afford to maintain manual, spreadsheet-based procurement tools. The good news is the cloud has made it easier to implement state-of-the art suites — and more affordable for organizations of all sizes.

How does the implementation of this sort of technology change the OEM/procurement relationship with suppliers?

Many procurement organizations spent the last few years focused on cost reductions (there was a big recession, after all), but now they are more focused on managing supplier relationships and long-term supplier performance. Supplier management is a key area that the survey says is prioritized for future investment.

Supplier management is a particular challenge when trying to do it with spreadsheets and Word files. There are simply too many of them — approximately 3,000-4,000 suppliers per $1 billion in spend. Most procurement groups don't have sufficient information about who is in their supplier network or what they are buying. That spells potential risk and opportunity for increased savings.

Do all the suppliers have to adopt the solution, or is the OEM commitment enough? What are the concerns you hear?

Both procurement users and suppliers need to adopt the tools to make them as effective as possible. The tools need to be extremely easy to use — hence the move away from ERP-type systems that are hard to use and not very open. Good news about future adoption: Millenials have grown up on web technology and expect that, when they buy something in a corporate environment, it should be like buying on Amazon — hence the focus on ease of use.

How do you think the electronics industry rates in terms of technology adoption compared to other sectors?

Electronics is among the highest adopters, and it faces some of the most complexity. For example, Zycus is enabling electronics manufacturing clients to source very large bid packages — more than 10,000 line items and 100 suppliers — completely online. If you can harness the power of analytics to award thousands of line items to the lowest-total-cost suppliers (potentially at the individual line item level), why not do it? Big dollars are at stake.

Price isn't everything. Quality counts a lot, whether it is canned vegetables or computer parts. How do you balance that with price point in the analytics?

These tools optimize on lowest total cost, which factors in quality, delivery, and service along with purchase price. The best-practice is to get multiple stakeholders involved to weight and score supplier responses on these nonprice factors.

It sounds like the bottom line is that organizations can take time on strategy rather than grunt work.

The bottom line is that organizations spend less time gathering data and get more information to make decisions.

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