When it comes to the procurement process, and specifically, tail spend management, procurement system evaluation can be tedious and cause companies to spend a lot more than necessary. While each company has a different system in place to facilitate their procurement, every procurement strategy has its own benefits and setbacks. Today, we’re going back to the basics and diving into procurement technology offerings and their perspective advantages and disadvantages.
Enterprise resource planning (ERP)
Enterprise Resource Planning (ERP) systems help companies manage everything related to money. This includes budgets, procurement, employee payroll, purchase orders, production, etc. Implementing an efficient and effective ERP system is crucial for the success of any business, big or small. This is because ERP systems, such as Oracle and SAP, consolidate all the monetary information that is tedious for a company to track manually. However, since ERP systems manage a large number of items beyond procurement, they are often too general to manage the specific, but still important, details for complete procurement analysis.
Outsourcing procurement companies
Some companies choose to outsource their procurement operations rather than managing their own. While it may seem cheaper to hire a third party for expense management, outsourced manual procurement companies are less motivated to go out of their way to save their clients money during the procurement process. Furthermore, these companies often use their own suppliers to manage their customers' expenses, which requires enterprises to completely cut out all of their current vendors. The bright side of outsourcing is that it does have the potential to save a lot of time. In addition, outsourcing companies sometimes offer supply chain consulting. This helps with education and creating a customized procurement solution for the company. Customizing procurement solutions through outsourcing is really the only way for outsourced procurement companies to save money. However, this consulting period often takes up a lot of time to construct and implement. The bottom line is: outsourcing only has the ability to save companies either time or money, not both.
Procure-to-Pay (P2P) and Source-to-Pay (S2P) solutions help enterprises monitor and manage the specifics related to the procurement process. P2P and S2P systems are responsible for every step of the procurement process from the end user to accounts payable. Some companies choose to create their own catalogue as a part of their P2P or S2P system. While this can help facilitate the procurement process, these internal catalogues need to be updated manually which can be a tedious and time consuming process. If an enterprise chooses to outsource a P2P/S2P e-procurement solution, oftentimes they will be provided with a catalogue, often called a spot buy catalogue. These catalogues are usually managed entirely by the procurement software solution and offer a large variety of readily available suppliers. However, spot buy catalogues often have static prices, require suppliers to pay/sign-up in order to be featured within the catalogue and do not integrate with an enterprise’s current list of suppliers. While these catalogues can be helpful for managing contracts and large purchases, most P2P/S2P catalogue solutions ignore spend for small to medium purchases.
Plug-in SaaS solutions
An alternative to spot buy catalogues and outsourcing is a plug-in SaaS solution that works with any existing P2P/S2P or ERP solution. Fairmarkit’s plug-in system integrates with P2P, S2P, ERP and internally managed procurement solutions to help enterprises manage their tail-spend. Tail spend is defined as the small to medium purchases a company makes that make up 80% of purchases but only 20% of procurement spend. Fairmarkit automates the Request For Quote (RFQ) process for these tail spend purchases to save procurement departments time and money. Without a solution like Fairmarkit, procurement departments either have to manually contact vendors for RFQs or default purchase from vendors that may be overcharging. Once an RFQ has been sent out, suppliers have a customizable timeline to submit a bid. This bidding process increases competition within the supplier market, allowing companies to get the lowest prices possible for their tail spend purchases. Unlike catalogue solutions, Fairmarkit does not replace a company’s current list of suppliers. Instead, Fairmarkit integrates with each company’s list of suppliers in their existing system. While Fairmarkit may be an extra purchase for a procurement department, the increased savings the software provides often pays for itself for medium to large companies.
There are a variety of factors that determine the effectiveness of one procurement system over another. Most organizations will find that a combination of solutions work best for them, but it’s important that they are able to work seamlessly together. As we have seen with other industries going digital, the growing shift towards e-procurement in the industry is indicative of faster, more efficient and cost effective technologies rather than the traditional, manual methods.