In this three part series, we will cover the history of procurement and ERP technologies and some key considerations as organizations define their strategy for the next 5-10 years.
I began my career in enterprise software in 1997 with a reseller of ERP software. At this point, ERP was a new technology, a replacement for MRP (Material Resource Planning) systems. ERP was billed as the culmination of all the business needs into one integrated software package. Systems provided core accounting, material planning, inventory management, and other business-critical functionality. However, as ERP systems gained customers, something interesting happened.
As customers began to utilize all the new functionality that ERP had to offer, they quickly identified gaps that existed in their respective industries. Manufacturing companies began to move from MRP to newer planning methodologies such as Advanced Planning, Kanban, etc. Organizations with huge warehouses needed functionality to better plan their pick/pack/ship processes. Manufacturing companies looked for solutions to better manage their complex supply chains.
The mid-90’s also brought about another innovation that was taking place within supply chain – the evolution from purchasing to strategic sourcing and procurement – and the need to better manage indirect goods and services, similarly to direct goods in supply chain, was just as true for procurement. Around 1998, eProcurement solutions were introduced to the market. The idea of curbing “Maverick Spend” was a game-changer to many organizations. Executives saw the need to better control their spending, which led to a hard-dollar savings that counted towards the bottom-line and positively impacting EBITDA. The business case for autonomous technology in procurement was born.
Systems and solutions like FreeMarkets, Ariba, Zycus, AquireX, Emptoris, and JAGGAER (formerly SciQuest) hit the market and the industry grew like wildfire. This growth was not ignored by ERP firms. Over the past 20 years, they have attempted to add, or acquire, procurement functionality to force into their traditional offerings. They developed a wide breadth of functionality to appease their customers across many of the verticals. But they lacked depth, and just as we saw with the initial ERP functions, businesses still actively look to new trends and innovations to gain a competitive advantage. With ERP roadmaps lagging the best-in-breed technologies, ERP customers embarking on procurement transformation quickly ran into two issues:
These two issues have often intersected. Users are constantly requesting enhanced features that they have seen elsewhere in the market, or at a previous employer. The development of these features adds more complexity to the end-user experience, driving the adoption down. This is especially true of the end-users, who need to utilize the system to request new suppliers, contracts, or items, and who must initiate their purchase requests from the ERP for the corporation to realize the expected benefits. When advising a company during their digital transformation journey, I often ask the customer two key questions:
So, what does all of this mean for your business? Using the procurement functionality available in your ERP is not necessarily the wrong choice, especially within a budget-conscious, less mature procurement organization. In our coming series, we will look at some of the key considerations, that should be evaluated before making that decision, including:
As we face ever-increasing global competition in our markets, the go-forward decision on procurement technology strategy must be made considering today’s needs, and tomorrow’s goals.