An ERP is not suitable for the procurement function

The tooling is in place anyway and the implementation seems to come at ‘limited additional cost’, both in terms of time, resources and licensing. In addition, no integrations need to be built. The information is already in the ERP system and employees are familiar with the ERP system. In short, it’s a win-win for the organization with a fast time-to-value. Unfortunately, this time-to-value is not always realized in practice, because the expected results and business case are not achieved. For example, the cost of licenses and consulting is higher than expected. John Schouten, Director of Product Management, shares 5 reasons to choose a BSM platform for the procurement function in this blog.

The basic function of an ERP system is to process and combine planning inputs, key business information and processes from across the organization. Examples include processing and maintaining financial and inventory-related information. These are basic processes exchanging huge amounts of data, but these often lack the finesse for a full and mature procurement function. This is why Business Spend Management (BSM) is gaining traction. BSM covers the entire Source-to-Pay process in conjunction with the ERP systems in place.

There are 5 reasons why a BSM platform is the perfect solution for Procurement. John Schouten, Director of Product Management, shares 5 reasons to choose a BSM platform for the procurement function.

The most common reason to add a Source-to-Pay implementation to an ERP system is the user experience. Whereas an ERP system excels at processing transactions and storing a lot of data, little attention has been paid to the User Experience. This component has been included to a limited extent. End users must first be trained, using manuals to work with the ERP system. End users experience a complicated system. The added value is not immediate visible as they experience a huge administrative burden. A procurement system creates a B2C online shop experience for the end user in a B2B environment, allowing the entire organization to embrace it.

BSM systems operating in the cloud are made for flexible exchange of data between other systems and the ERP system. This is done through online services or APIs. A BSM system can provide timely insights from the volume of data that would not otherwise be available. This information enables accurate response to policies or collaborations. In addition, it is possible to connect to online marketplaces (online shops). As a result, it does not need to be managed internally. If a supplier does not have an online shop, it is easy to set up supplier catalog management. People often wrongly assume that digitizing the process in an ERP system will enable a degree of automation. This digitization is rarely accompanied by electronic processing of non-end product related transactions. As a result, the degree of automation is disappointing.

Portfolio
An ongoing ERP system does not support the entire BSM domain. Key differentiators in the areas of sourcing and contract management are often virtually impossible to manage in an ERP. As a result, the benefits of a proper and fully integrated digital procurement process can never be fully realized. A best-of-breed solution is needed to secure the risk & compliance, realize cost savings in sourcing, and place orders on the established contract terms and conditions.

Golden record
Many of our customers, through acquisitions or otherwise, have multiple ERP systems in use and sometimes deliberately maintain this diversity. Accounting consolidations are established to enable group level reporting. However, processes are more difficult to centralize and streamline due to the variety of ERP systems. There is a lack of understanding of commitments, expenditures and agreements made with suppliers and within purchasing categories across all group companies. As a result, opportunities and cost savings are missed due to failing to negotiate purchasing contracts at the central level to achieve economies of scale. In addition, it results in increased supplier risks because the company does business with parties that have not been assessed or monitored.

An ERP system is excellent for combining key business information. However, it is limited to these static data. This data is often not up-to-date. This makes real time analysis challenging. External information cannot be enriched and is not taken into account in the process. With a golden record, supplier data is centralized. The data is enriched with market information such as fraud susceptibility, credit ratings and sustainability. Additionally, transactions in the process can be checked against these scores on a daily basis, alerting users when something has changed or automatically requesting additional approval.

Collaboration within an eco-system
With global supply chain disruptions, such as material shortages, tight labor markets, production delays and inflation, collaboration in the chain is becoming increasingly important. BSM technology embraces collaboration with the entire community, enabling higher business impact by ensuring more transparent and timely performance and risk. In this way, an eco-system is created around the entire Source-to-Pay process. This eco-system ultimately consists of B2B online shops, marketplaces, credit rating agencies and integrations for sustainability ratings, among other things. In contrast, an ERP system is not designed for open access collaboration with multiple parties within the procurement process.

An ERP system is an indispensable part of business life and has proven itself over the last 40 years as an important link for processing transactions in various business processes and storing data. However, practice shows that ERP systems are less suitable for the automation and centralization of the entire procurement function. With a Business Spend Management (BSM) platform, the entire procurement process with associated tasks, applications and data is centralized and optimized in a single ecosystem. This provides insights, allows for minimizing risks and standardization and automation of processes.

Start managing all your organization’s expenses and processes. A single Business Spend Management platform for: Vendor Management, Sourcing, Contract Management, Procurement, AP Automation, Spend Analytics and more.