The challenge of budgeting for procurement technology

It’s all well and good for writers who specialize in matters related to procurement to inundate you with encouragement and inducements to acquire the latest and greatest procurement software and technology. After all, talk is cheap, and suggestions about how you should allocate your own company’s resources are very inexpensive to make. Yet, technological advancements that are ultimately designed to save companies both time and money routinely come at an exorbitant up-front cost to the very same companies that are in the greatest need of savings.

Clearly, a measure of caution is essential when pondering purchasing decisions that involve the acquisition of new, high-dollar, tech-based procurement solutions that are unproven in their effectiveness prior to being purchased.

Given this understanding that the same organizations that can’t afford to guess wrong about the technological procurement solutions they acquire can often barely afford the up-front expense of guessing right, considerable thought must be devoted to budgetary preparations in this area before any solutions are seriously evaluated.

It’s not easy

The recent focus on procurement activities and cost-saving maximization has resulted in more and more companies allowing procurement leaders to occupy a seat at the table during meetings designed for budget setting. As expected, this has created scenarios where large numbers of organizations opt to devote ever-increasing portions of their budgets to the technologies requested by their procurement and supply-chain teams, even if the finance teams occasionally have trouble locating the money that procurement personnel have saved them throughout the year.

While boosting the percentage of the tech budget dedicated to procurement solutions is appreciated, far too many procurement professionals fail to maximize the potential benefits from those enlarged budgets. One common reason for this deficiency is the rapidly increasing number of technological solutions that modern procurement personnel are now expected to select from. According to Gartner research, “more than “70% of sales professionals report the product set in their bag is growing more complex, in part due to the ability to customize and proliferate new products at low cost.” [1]

The ongoing propagation of new solutions in the areas of technology and software has complicated the process of solution selection. The abundance of options to choose from is accompanied by a set of advertised projections (but rarely guarantees) as to the financial savings that can be recovered from implementing these solutions. Therefore, opting to execute a procurement strategy based solely on the savings projections extracted from the advertised promises of a software vendor is an action steeped in risk. Yet, in the modern age of business, such decisions are obligatory, and organizations are frequently pressured to merge some tech solutions into their operations before they are properly situated to maximize the proposed benefits of that technology. Therefore, it can be difficult to accurately gauge the return on investment that a new technology can predictably yield, despite the fact that projected ROI is often the determining factor of whether or not any business decision is made.

Expert advice

As David Latten, the Head of Global Indirect Procurement for Logitech points out, there are a host of tradeoffs that can be made in the pursuit of business-altering technology, and companies usually can’t afford to sit back and wait for a clear winner to present itself.

“If you wait for the technological case to be proven, in a way, that's probably almost too late,” said Latten. “And then there's value lost by not moving fast enough, too. I think you need to be flexible. Being open to the idea of new platforms for new problems to be solved, but also being cautious that if you end up getting too loose with it, you'll have far too many platforms. You need to approach it strategically.”

As companies look to deploy analytical strategies to aid in determining budgetary allocations and technological investment priorities, something of a consensus is beginning to build related to exactly which opportunities should be prioritized. Frank Cuomo, the Vice President of Sourcing and Procurement at Univision, is among the many procurement professionals in agreement that solutions connected with payment tech and procurement tech should be the foremost opportunities in the minds of those in control of their businesses’ purse strings.

“Payment technology solutions definitely should be priority one,” says Univision’s Cuomo. “Procurement technology solutions should be priority two, such as further advancing tail spend, or expanding the use of tail spend to drive cost savings.”

While not disagreeing with Cuomo, Latten advises decision-makers to pinpoint the areas of greatest need and concern within each individual organization before identifying investment areas and earmarking resources to devote to them.

“I guess I'm biased to a certain extent, in terms of being from procurement, but I think the answer varies depending on the business,” explained Latten. “Where can most positive impact be gained by the company?”

Action is important

When you get down to the heart of the issue, whether procurement technology is positioned as the foremost priority within your organization is largely irrelevant. No matter where procurement tech is placed amongst your company’s hierarchy of needs, it is imperative that your leadership team recognizes its general value to the present and future success of the organization.

At a bare minimum, corporations that acknowledge and act upon the demonstrated value of procurement technology by investing real dollars toward exploring money-saving procurement solutions are displaying the correct mindset. As long as the procurement team has a seat at the table, the benefits of procurement technology can be highlighted, and future conversations can be steered toward additional investments in tech and the business wide savings that accompany those investments.

Want to learn more?

Our latest eBook The State of Procurement 2020: Present and Future explores the current state of procurement, the benefits and pitfalls of automation, the challenges of budgeting for procurement technology and how the procurement leaders of today are navigating a wave of change.

Download the eBook here.

[1] Gartner “Transforming the Procurement Function for 2020,” Procurement Research Team, 29 March 2018 (https://www.gartner.com/document/3899866?ref=solrAll&refval=234585617). (Gartner  subscription required)

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