Procurement and sourcing software for manufacturing can be quite confusing. The broad array of applications can sound like alphabet soup even to experts, let alone the uninitiated. The picture is complicated by the nuances of procuring not just indirect goods and services, but the direct materials to be used in manufacturing.
How confusing can it be? Start with the diversity of spend visibility and analytics tools, which has at least a half dozen distinctive types and more than 50 providers. Then add the entirely separate challenges of e-procurement, Electronic Invoice Presentment and Payment (EIPP), supply chain finance, and e-sourcing, which includes general platforms and those specifically for direct materials. And don’t forget the need to investigate such separate -- but no less important -- applications as contract management, supplier performance management (SPM), supplier risk management (SRM), and supplier information management (SIM), also called supply base management.
Moreover, these applications don’t begin to address supply chain functions that increasingly overlap with sourcing software and procurement software, such as total cost management, decision optimization, inventory management, supply/demand planning and supply chain scenario analysis. Layer on top of all this the confusing morass of delivery options -- for example, on-premise, hosted, single-tenant Software as a Service (SaaS), cloud computing, and the like -- and the procurement sector becomes even more confusing.
Procurement software by the slice
I like to simplify the equation by dividing sourcing and procurement technology into four categories: sourcing and decision support; spend and contract visibility; procurement and payment; and information, risk and performance management. The categories often map to how manufacturers make procurement spending and platform decisions.
Sourcing and decision-support applications deliver basic and advanced capabilities for sharing information and negotiating with suppliers, managing categories and commodities, and optimizing award decisions. These applications include what are known in the industry as request for information (RFI), request for proposal (RFP), or request for quotation (RFQ) -- collectively, RFx -- along with reverse auction/sealed bid, sourcing optimization, category management, and commodity management. Vendors view the latter subcategory as distinct. Some sourcing platforms also include elements of product lifecycle management and total cost management.
Spend and contract visibility includes the following:
- Data management
- Spend visibility, including data acquisition/extract, transform, and load (ETL), as well as data cleansing, classification, and analytics
- Contract management
- Trade/compliance tools
You can’t get all of these from one vendor, but it’s a good idea to tie together spend and contract visibility to manage both sides of the buying coin. This helps to ensure you get what you bargained for, including all the appropriate terms and conditions.
Procurement and payment applications include e-procurement, EIPP, scanning and OCR for invoices, network connectivity to suppliers, and the basic portal, registration, and workflow features needed to facilitate them. This is the most mature market. It is also the one where ERP vendors offer capabilities closest to the quality from best-of-breed vendors, although many gaps remain.
The last category, information, risk and performance management, includes SIM and SRM as well as tools for supplier implementation, performance and development. This is the least mature category. Vendor offerings vary widely, and manufacturers often tackle these solutions one at a time instead of looking at the issues holistically.
Each of the four categories has its own selection criteria. At this stage of the market, there is no universal approach, and it’s impossible to standardize on a single vendor -- even an ERP provider -- for sourcing and procurement.
About the author: Jason Busch is Principal Analyst at Spend Matters and Managing Director of Azul Partners, which has ownership and management interest in a range of media, publishing, and advisory sites and firms.