Small and medium sized businesses (SMBs) could potentially have the most to gain from better procurement, yet they tend to lag far behind larger organizations in general sophistication (e.g., adopting basic strategic sourcing, category management, or compliance processes and policies) as well as technology adoption across source-to-pay (S2P) procurement technology. While inconsistency of process knowledge and excellence in SMB procurement is an important broader topic for discussion – for example, why many smaller businesses may be quite good at buying one or two strategic commodities such as stainless steel, copper, resin or contingent labor but sacrifice tremendous value overall – what's more interesting to us as we leap into 2013 is how the stars appear to be aligning for a greater focus on procurement technology/tool capability and adoption among small and medium-sized organizations.
Certainly this is not the result of small business accounting providers including QuickBooks (Intuit), Microsoft Dynamics, Zoho, Sage, Infor, JD Edwards (Oracle) and many others paying greater attention to procurement in their suites. In general, the procurement capabilities these providers offer are limited to direct materials requisitioning, "three bids in a box" and related basic buying capabilities – at best. Yet some of these providers are starting to play a role (we believe) in this sector transition indirectly, especially Intuit, which recently launched the QuickBooks Online App Center, which allows third parties to develop and sell tools and plug-ins (e.g., T&E) in the QB online ecosystem.
As more and more small business CFOs and controllers stumble across procurement applications as they log-in to QuickBooks (our CFO recently did), they will undoubtedly begin to ask questions about how time and expense, travel, inventory, and related applications can help expand the debits and credits accounting package value proposition. But more important than finance and accounting users simply discovering that these applications on their own, is the fact that they're pre-integrated to work on the accounting platform in the first place. This makes adoption and any perceived (real or not) adoption hurdles that much easier to overcome.
There are other reasons that SMB procurement tool adoption will take off this year, including:
- An increasingly diverse set of T&E applications available and targeted toward small businesses
- Integration (in certain cases) of these T&E applications with a procurement suite (e.g., Coupa, Rearden)
- The growth of indirect adoption channels versus direct sales for these tools (ranging from "app store"-like capabilities within QuickBooks to truly channel and private label solutions delivered by banks and travel providers like MasterCard or American Express)
- Material investment in down market target (middle market, specifically) by eProcurement and eInvoicing companies (Ariba/SAP, Basware, etc.) that have traditionally sold to larger organizations
- The availability of alternative funding models for middle market tool use and adoption (e.g., leveraged contracts/buying groups, supplier fees) to make the application itself "free" to the buying organization
- Amazon, Amazon, Amazon – the consumer giant is already becoming a small business giant with Prime and Amazon Supply (and could move up from the smallest of companies using Amazon as their procurement cockpit to the middle market). This is forcing the hand of others to move quickly
- Network effect business models (e.g., Tradeshift), where suppliers can easily become buyers on a network virally. This is in contrast to network business models where buyers and suppliers maintain two very distinct profiles and roles within a system
What tool areas are most primed for adoption and which vendors are likely to thrive as SMB procurement tool usage takes off? We'll explore this in the next installment of this series.