This column is jointly authored by Spend Matters' Jason Busch and Deloitte's Brian Umbenhauer. Brian is a Principal at Deloitte, with extensive procurement and supply chain experience in a combination of strategy, operations and technology areas.
We've come to believe that in the past eighteen months, many technology vendors have done a bang-up job of at least partially pulling the wool over many customers' eyes when it comes to hiding the true total costs of SaaS procurement applications. We're not talking about a simple total cost of ownership calculation here, looking at installed vs. hosted solution options, but rather the entire operational cost of choosing what some describe as "cloud" approaches over others. In our pragmatic view, total cost factors must go far beyond an equation of renting vs. buying an application (with or without all of the added hardware, IT support and related indirect outlays required). In this post, we hope to share our experience from the technology selection and roll-out trenches in hopes of helping you avoid a situation where vendors in-part or in-full pull the cloud over your P2P/SRM, sourcing, spend analysis and related technology area spending eyes.
Before beginning our perspective and commentary on the subject, it's essential to first have a critical understanding from a total cost basis about the particulars of the SaaS/cloud provider's underlying solution cost structure. For example, in a P2P setting, this should include both the buyer and supplier component of network fees. We recommend doing a 3-5 year net present value (NPV) calculation for these fees on both the buyer and supplier side. For example, if a Dell, Staples, Grainger, etc. is going to end up paying tens or even hundreds of thousands of dollars in transactional fees -- in the case of Ariba, it is possible over a five-year transacting period that a single supplier could cap out in a single selling relationship at $100K in fees paid to Ariba -- it is important to understand the exact number, factoring into account the cost of capital, up front, to arrive at an understanding of the total cost over the contract duration.
Looking at these numbers, it can quickly become apparent that in certain cases, the fees paid by large suppliers -- which our experience suggests will inevitably be pushed back, fair or not, on the buying organization -- can approach, reach or surpass the actual license fees paid for the actual solution over a similar time period. In addition to looking at network fees in the P2P area, it's also important to factor in the full costs of supplier enablement, a historically overlooked cost center that is finally getting at least part of the attention it deserves. Enablement challenges and costs have often held back the potential of many ERP-driven SRM and procurement implementations in the past decade. Yet even today, don't discount the cost of supplier enablement in a SaaS/cloud environment. From a cost standpoint, it's also important to consider how vendors price based on the types of users. Don't assume that every user will be accounted for in the same way.
The last piece of hopefully sage advice we'll leave you with is to consider how integrated so-called "suites" are in the field. Even in a SaaS/cloud environment, there can be surprising "behind the curtain" professional services fees that in theory should be assumed by the vendor, owing to a lack of true modular and out-of-the-box systems integration capabilities. Yet providers often foist these fees on innocent and unsuspecting customers that take marketing slicks and sales approaches on face value. If you do some homework here, you might find that it is nearly, or as nearly, cost effective to integrate best of breed capabilities from multiple SaaS providers (or a combination of SaaS/installed) than to go with a solution from a single provider, depending on the level of actual vs. claimed integration across the suite and back-end systems.
Stay tuned for the next installment in this series. Spend Matters would like to thank Deloitte's Brian Umbenhauer for co-authoring..
Jason Busch (and Brian Umbenhauer)