Best-in-Class vs ERP – which route to take?

There's a growing interest in spend management among public and private organizations. And finding new ways to control expenditure on goods and services has become a quest for many. But what's driving this trend?

Indirect spend management has the potential to deliver instant business-wide savings to the bottom-line – as long as it embraces the complete Procure-to-Pay cycle.

ERP systems will certainly address fragments of the cycle. But rooted in manufacturing and distribution, they lack the nimble, flexible and holistic capabilities required to manage the procurement environment of today’s service-orientated business environments.

Pressure to take the ERP route
The pressure is certainly on to take the ERP route. After all, that is where the historic technology investment has been.

Different voices will shout about what they consider to be the best options for quick-win solutions. Accounts Payable (AP) will demand point-solutions, for example invoicing, to lower their in-tray and IT will invariably want to rationalize existing systems suppliers.

However, if you make spend management a slave to your choice of technology rather than a considered process redesign project, you could compromise a major opportunity to take complete control of the Procure-to-Pay cycle across your organization for the very first time. As a result, missing out on delivering total financial visibility and meeting the challenge of managing “maverick” spend head-on.

Unexploited opportunities
The scale of unexplored opportunity is enormous. Up to one third of large enterprises have yet to buy any kind of procurement system and a quarter of them are not using any kind of procurement tools.

As many of 60%* of ERP customers eProcurement licenses have not yet been installed and there could be a very good reason why the ERP system has lain dormant since the main system was implemented.

ERP: A legacy of dashed expectations
Whilst there is no doubt that ERP systems have extensive operational data gathering capabilities, their technology focus rarely allows them to use that data to enable a transparent and accurate view of the entire Procure-to-Pay process.

If you take this route to spend management and allow technology to drive the project and replicate what you are already doing, you risk missing some of the key benefits you are setting out to deliver. With the pressure on to deliver quick results, the risk of embarking on a potentially lengthy and complex ERP integration project throws the likely benefits of a best-in-class procurement system strategy into an exciting new light.

Where ERP systems tend to lack the workflow rules that enable a complete set of business benefits to be realized, purpose-built procurement systems use workflow to enforce electronic authorization, regardless of how complex the organization’s spend management hierarchy might be. And if they are easy to use, “maverick” spenders will buy into the strategy more readily. Employee workarounds that you previously never had sight of until the order was received will be no longer.

Managing working capital carefully
Many organizations have invested in technology to manage purchases after the event but they rarely think about taking this to the next level.

Take supplier or contract management, for example. There might be thousands of records in the ERP system database but the information they represent is untapped. How many of them are duplicated? What type of relationship do they represent? How could they be used to rationalize an authorized list of suppliers? Answer these questions and a vital link in the expenditure cycle will fall into place.

By investing in a best-in-class system, an organization could itself establish best-in-class credentials for the way it manages its suppliers and much more.

Leverage existing ERP investments?
Consider using the procurement system as a front-end requisition engine, feeding into your established ERP modules. Even as an interim solution, without the significant overheads of an ERP implementation, a best-in-class system can deliver immediate and significant cost savings.

Once they are established as a mechanism for streamlining the complete expenditure cycle, proving them on the CAPEX front and delivering quick savings to gladden the heart of the most cynical CFO, many organizations choose to continue using them.

*First Wave eProcurement Solutions, Forrester Research