A guide to choosing (and making the most of) digital procurement technology
In the crowded procuretech landscape, choosing the right technology to use, at the right time, has never been harder. In this quick guide, we take a high-level look at procurement technology applications, how to leverage a 2x2 matrix to evaluate the needs of your organisation, and how to apply the strategy, tactics, and resources to managing each of the quadrants, based on operational importance and competitive advantage.
At the end of 2016, and after 12 years of employment in procurement tech, I said a fond (and fairly tearful) farewell to my colleagues at BravoSolution (acquired by Jaggaer in 2017), and my partner and I set off on an Asian adventure to live and work in Singapore.
At the time of my departure, the technology landscape was highly consolidated with a lot of the large players having consumed the smaller, niche providers. One business partner I spoke with recently remembered this time: “We had three event exhibitors that had been acquired by three other event exhibitors at this time, so we ended up with two stands each for three of our exhibitors. It was a strange time.”
But like most industries, procurement technology is not immune to typical market fragmentation and consolidation cycles.
Jump forward five years – three of them spent working in an unrelated industry, one repatriation experience, a few house moves, and a pandemic – and I joined Vizibl, the leading digital procurement platform for Supplier Collaboration & Innovation.
Reviewing the 2021 procurement technology landscape after an absence of half a decade was an eye-opening experience. The growth of new best-of-breed applications in the intervening five years had been explosive. Yet this movement from the consolidated landscape of 2016 to the highly fragmented landscape of today poses a significant challenge: how do digital procurement leaders choose the right tool for the right job at the right time?
Application suites versus best of breed
At the apex of consolidation cycles, years of merger and acquisition activity amongst large players in the procurement technology space begins to impact their platforms. Some are unwieldy hybrids of many legacy applications and integrations that have occurred over the course of the enormous shift in the technology landscape. Where large providers can provide breadth, they can equally be cumbersome, difficult to implement, and ultimately hamper agility.
Best of breed providers offer procurement organisations the opportunity to implement digital platforms developed during a time when an incredibly rich data and technology landscape is the norm. Now that open API capabilities are standard, businesses are able to cherry-pick to their exact requirements, easily integrating multiple small providers who excel in their area of expertise. This combination of best of breed providers unlocks agility and speed – and ultimately competitive advantage. It is in integrating these ‘best of breed’ applications into organisation appropriate tech stacks, that digital procurement leaders excel.
The procurement technology lifecycle
In order to understand how to select procurement technology, it’s beneficial to start by revisiting the procurement lifecycle to understand which procurement applications – be they suite, or best of breed – sit where in the process. This is a high-level, non-exhaustive list, but covers off the three main areas of procurement technology needs: strategic sourcing, P2P, and post-contract strategic relationship management.
Part of a larger set of processes that fall under Spend Management, Spend Analysis refers to the process of aggregating, cleansing, segmenting, grouping, normalising, and analysing the spend data of a business for the purpose of finding new or improved efficiencies and decreasing procurement costs. These efficiencies can be bolstered with Spend Analysis technology, which helps to visualise data, driving more effective insights that lead to better decision-making.
Spend Analysis can be used to underpin category strategy, monitor and rectify off-contract spend to bring on-contract, manage tail spend, and to segment suppliers by spend or by category.
Sourcing & responsible sourcing
As a key part of procurement’s remit, many applications have popped up designed to help with the sourcing process. eSourcing and similar solutions enable procurement teams to gather and analyse more data – enabling the selection of the appropriate goods and services from the appropriate suppliers – in addition to automating parts of RFX processes, supplier scoring, and awarding of contracts.
As the Sustainable Procurement movement grows, many of these solutions have evolved – or new ones have debuted – that automatically incorporate environmental, social, and governance metrics at the sourcing stage, allowing procurement to source suppliers with extended criteria in mind that account for procurement initiatives around issues such as supplier diversity, scope 3 emissions, and more.
Contract Lifecycle Management
CLM is the process governing the management of contracts from their initial awarding and contract creation through to execution, performance, and renewal/expiry. This process is frequently supported with contract lifecycle management software which finds considerable efficiencies in an otherwise laborious process through the addition of automated rule-based workflows, libraries of contract templates, integrations with auto signature software, contract performance analytics, and more.
Supplier Information Management
Supplier Information Management (SIM) systems allow procurement to systematically capture, store, update, and analyse all supplier information from one centralised location, including crucial data about risk, key contract KPIs, and documents related to the relationship. As with many of the other procurement technology applications, SIM systems discover new time and process efficiencies by reducing the administrative load on the buyer side.
Supplier Performance Management
Supplier Performance Management, or SPM, is the process of continuously assessing and analysing the performance of suppliers in order to ensure compliance and encourage continuous improvement. With SPM applications, the process of measuring and analysing supplier performance is faster and easier and data is more accessible, allowing procurement to more easily identify areas for improvement or suppliers who are failing to meet expectations. In turn, this leads to better maintenance of product and service quality, in addition to improved supplier accountability for delivering on key metrics.
P2P – Procure to Pay or Purchase to Pay
Marketplaces or Catalogues
Marketplaces – formerly known more commonly as catalogues – provide the business with an electronic marketplace. These applications allow stakeholders in the business to buy common, non-strategic items from pre-approved suppliers at the right price, without the input of procurement. This marketplace of pre-approved suppliers and items allows procurement to gain control of transactional procurement and minimise rogue, off contract purchasing.
Issuing purchase orders is a key area of procurement operations, specifying what services are required and when. Purchasing software speeds up this process by eliminating the need for enormous amounts of manual data entry, and automating requisitions, POs, and approvals.
Invoicing management applications allow for automation of the accounts payable (A/P) and invoicing processes by automating cost coding, approvals, and reconciliation, thus removing the need to track, review, and match invoices manually.
Inventory management or inventory tracking applications provide visibility over the quantity and the flow of goods to, through, and from warehouse locations, enabling better demand planning and thus more effective and appropriate purchasing.
Supplier Collaboration & Innovation (SC&I)
While strategic sourcing can help get the most value from supplier relationships pre-contract, and P2P processes maximise the transactional value of incumbent suppliers, there is still considerable opportunity in working strategically with suppliers as the relationship develops, moving beyond transactional work to deliver on the key goals of the organisation.
This strategic, post-contract work falls under ‘Supplier Collaboration and Innovation’, a grouping with four key constituent areas:
Supplier Relationship Management
Supplier Relationship Management (SRM) is an approach to systematically aligning and managing the performance of suppliers that the business has a relationship with in order to drive down risk, find cost and quality efficiencies, and ensure supply of the materials and services that the buyer requires. SRM helps to ensure procurement is maximising the potential of its existing supplier relationships to support the function’s goals and the goals of the business more broadly.
It is a critical discipline in procurement and supply chain management, and is a crucial contributor to business success when deployed effectively.
Modern Supplier Relationship Management comes with proven benefits for reducing costs, improving efficiency of operations, and consolidating the supply chain. A well-managed supplier relationship is a relationship that is more efficient, in addition to being more agile and resilient in times of disruption.
Supplier Relationship Management applications help to secure these benefits by providing a more efficient and robust process for managing suppliers and partners. By instilling transparency, centralisation, automation, accessible data, and repeatable processes at the heart of supplier relationships, SRM technology also ensures that these benefits can be accessed at scale.
Supplier Collaboration leverages the alignment created by SRM to take supplier relationships to the next stage; the SRM groundwork supports the creation of highly collaborative, goal-oriented, mutually valuable relationships. Supplier Collaboration moves relationships from ‘static’ — usually focused around retrospectively monitoring performance and compliance — to ‘active’ relationships. ‘Active relationships’ denotes activity on shared projects, robust tracking of relationship value, and continuous instances of collaborative interaction.
The key benefit of Supplier Collaboration is that it cements a ‘customer of choice’ relationship between buyer and supplier. Customer of choice status grants privileged access to a supplier – their best people, smartest ideas, preferential pricing, their latest innovations, cooperation with ESG initiatives, and priority access to their capacity in times of scarcity or shortage of supply.
While Supplier Collaboration brings many benefits, collaboration efforts can frequently derail due to lack of systematic management – multiple programmes with multiple suppliers, across multi national borders, can quickly become unwieldy. Supplier Collaboration technology helps overcome this risk by bringing procurement, its colleague functions within the business, and external suppliers into one centralised location to work side by side towards shared and mutually beneficial objectives.
To deliver on key goals in the face of growing challenges to their operations and their competitiveness, many businesses are turning to their extended ecosystem for new innovations. They are right to; suppliers and partners come armed with their own talent pool, a wealth and breadth of knowledge of competitors and even entire verticals, and an intimate understanding of local conditions in a global marketplace. Per McKinsey, supplier innovation is 40% faster to market than homegrown ideas, translating to considerable advantage in a competitive landscape.
Though supplier innovation signals a promising route to overcoming key challenges, enterprise business frequently finds it difficult to tap the innovation and IP potential in their supply chain and beyond as innovation projects stall. Supplier Innovation technology overcomes these barriers by providing a systematic way to source innovation, triage ideas, and bolster conversion rates from ideation to innovative deliverables. This prevents the value leakage that is common in supplier innovation efforts, and provides clearer proof of the value being driven to the business.
The majority of a large company’s environmental impact – on air, water, land, natural resources, biodiversity, and more – will sit in the upstream value chain. This is especially true when it comes to GHG emissions, with CDP data showing that a company’s supply chain emissions are 11.4 times greater than their own operational emissions. Enterprise organisations also have a huge impact on our communities and influence how our society operates throughout their value chains.
Given this fact, many businesses are looking towards their suppliers and partners to effect the fastest, most impactful change on sustainability and ESG, signalling a huge opportunity for procurement and supply chain functions to make progress on key business priorities from their position at the interface between the business and its suppliers.
But influencing external actors in the supply chain is notoriously difficult. Lack of transparency and centralisation over sustainability performance, unwieldy data from disclosure system providers, and difficulty integrating this data with existing procurement platforms and processes hampers the function’s ability to baseline and monitor supplier performance. When it comes to looking forward and making improvements, these difficulties are compounded further, with little infrastructure in place to set targets for suppliers, identify blockers, align on objectives, and work collaboratively on improvements.
Supplier Sustainability Management software overcomes these blockers by providing robust infrastructure, processes, and data management capabilities to robustly measure, manage, and improve supplier sustainability performance.
Defining needs, strategy, and resources using a classic 2x2 matrix
At its heart, the 2x2 matrix is a decision support technique where an organisation or team plots options within a four box matrix where each axis represents a decision criterion, such as cost or effort. In the case below, we’re categorising different business needs across two axes – operational importance and competitive advantage – in order to help ascertain their strategic value to the business, how best to manage these needs, and the technology or application best suited to its management
Here’s a basic checklist to follow when creating any 2x2 matrix, along with examples of the strategy, tactics, and resources involved in managing each quadrant:
1: Strategic needs
As a leadership team, define a list of your organisation’s strategic needs, cascaded down from your corporate strategy.
Agree as a team where each of these needs sit on your matrix.
3: Remember 'directionality'
Highlight the ‘directionality’ of each of your needs. What’s not important for your business today may be mission critical next year. The matrix should be viewed as fluid; things can move upwards, downwards, diagonally, or sideways depending on the needs of your business today versus tomorrow. Some may even disappear altogether; in the example below, for instance, ‘implement responsible sourcing strategy’ could be later replaced with ‘manage and measure responsible sourcing strategy’.
Here's an example of one fictitious organisation's matrix of strategic needs, along with their imagined directionality:
4: Define your strategy based on the quadrants
Each quadrant will have a corresponding strategy. Typically, it might look like this:
We see many matrices created without the necessary strategy, tactics and plan, resources, and remuneration models. Without these key elements, the plotting exercise becomes futile, rendered isolated and ineffectual.
5: Resourcing planning and allocation
Dedicating the right resources to each quadrant is the next step. Key supplier managers, category managers, or contract managers, should be deployed against strategic needs that are appropriate to their skillset, then targeted, remunerated, rewarded, and recognised for their performance against these needs.
Here is a simple learning methodology and a performance potential model to consider:
Five examples in action
Strategic Need: Improve on contract vs off contract spend Importance: High operational importance, low competitive advantage Strategy: Onshore or outsourced, but tightly managed Resources: Spend or Contract Manager Reward: NA Platform: Spend Analysis & Contract Lifecycle Management
Strategic Need: Recover duplicate payments Importance: Low operational importance, low competitive advantage Strategy: Outsource Resources: Supplier or Contract Manager of outsourced services Reward: N/A Platform: Duplicate Payment Recovery (DPR) service
Strategic Need: Build resilient supplier relationships in ‘bottleneck’ categories Importance: (currently, in our example in fig. 1) low operational importance (with upwards directionality), high competitive advantage Strategy: Onshore, closely managed, and ready to be promoted in strategic importance Resources: KSMs or SRMs with experience in building trusted, valuable partnerships with a long term strategy to transform these into ‘customer of choice’ relationships Reward: Remunerated, rewarded and recognised based on achieving an agreed numbers of ACRs (Active, Collaborative Relationships) Platform: Supplier Collaboration & Innovation
Strategic need: Empower transformation and growth through Supplier Innovation Importance: high operational importance, high competitive advantage Strategy: Tightly managed and focused, owned and controlled Resources: Top performing Key Supplier Managers, Supplier Relationship Managers, Supplier Collaboration Managers, who are recognised as best-in-class at creating ‘customer of choice’ relationships. Reward: Remunerated, rewarded and recognised based on Supplier Innovation pipeline, reduction of POC duplication, transformational incremental innovations, new revenue stream introduction Platform: Supplier Collaboration & Innovation
Strategic need: Improve Supplier Sustainability performance Importance: high operational importance, high competitive advantage Strategy: Tightly managed and focused, owned and controlled Resources: Top performing key supplier managers, supplier relationship managers or supplier collaboration managers, who coach and mentor the next generation of KSMs, SRMs, or SCMs. Reward: Remunerated, rewarded and recognised based on a set of supplier sustainability KPIs for instance supply chain emissions reduction targets - # of suppliers engaged in a programme, # of suppliers with targets in place # of emissions reductions projects with suppliers Platform: Supplier Collaboration & Innovation
In summary, enterprise organisations do not buy technology for the sake of buying technology, they buy it to solve problems. A deep understanding of the organisation’s strategic needs, coupled with insight into the wider strategic direction of the business and the application of the right strategy, tactics, planning, and resources enables digital procurement leaders to maximise the ROI of technology investment.
The old adage of ‘people, process and technology’ may be as old (or maybe even older) than I am, but it remains ever relevant in today’s chaotic and hyper competitive business landscape.