Earlier this week, Microsoft (Dynamics) announced a partnership with Hubwoo to bring additional eProcurement, e-invoicing and related capability to its user base (see: Microsoft and Hubwoo Partner: Dynamics, Business Networks and P2P). The news should come as no surprise for those who watch middle market ERP and procurement technology given the limited investments providers such as Microsoft, Infor, Workday, NetSuite, Sage, and others have made in the procurement area.
Even though deployment models, vertical/industry depth and general suite breadth (e.g., CRM) may vary across these vendors, it’s all but universal that they underserve procurement in just about every technology need (beyond enabling basic materials management and transactional buying for direct materials). Consider how middle market procurement-centric capabilities come up short across the board:
- Indirect procurement capabilities (req-to-pay) – middle market ERP providers lack the capability to enable the indirect materials req-to-pay buying, approvals, receiving, invoicing and payment process. Requirements to support indirect procurement include search/shopping across multiple catalogs (buyer/supplier hosted), workflow/approvals, invoicing, receipting, matching, supplier portal, supplier enablement, transactional connectivity/supplier network, and more. This is about everything Ariba, Coupa and SciQuest excel at, and gives a sense about where middle market ERP comes up short in enabling indirect procurement
- Fully manage contingent workforce and complex services categories (non-PO, SOW and project-based arrangements). Certain vendors have limited capability in the VMS and SOW sector, but generally speaking, supporting the full lifecycle of services spend from sourcing to onboarding (supplier and worker) to invoicing to payment to performance management, is lacking. Moreover, middle market ERPs lack the ability to support complex services category procurement with specific tools/templates in areas like print, telecom, packaging, etc.
- Comprehensive supplier management capability, including supplier enablement, supplier performance management, supply chain risk management, supplier diversity and bill of materials traceability. Middle market companies may not think these areas require technology to manage, but for regulatory areas like supplier diversity and conflict minerals, where the customers of middle market ERP users need to show traceability on a multi-tier level, organizations can gain much from the strategic use of tools (the same is true of technology to support supply risk management, supplier performance, and related areas)
- E-Sourcing, direct materials sourcing and commodity management – the sourcing capabilities of middle market ERP procurement solutions, when they exist, amount to “3 bids in a box” type functionality or restricted competitive bidding/reverse auction formats. Supporting hundreds or thousands of line items, advanced auction formats, scenario-based analysis and constraints, demand aggregation, design/file sharing and collaboration, let alone broader commodity management for direct materials to enable proper hedging and accounting treatments is highly limited
- Contract management – a shared Google drive is not a contract vault or repository, let alone a broader contract authoring, compliance and/or search/discovery tool to understand contract exposure across an organization. Contract management capability, like the other areas we’ve explored, is potentially of significant value in the middle market. It can align procurement, sales and legal teams and, when linked to ERP and broader invoicing/payment capabilities, can help drive contract compliance and effective procurement strategies (e.g., escalation/de-escalation clauses for raw materials linked with market indexes and payment mechanisms to only authorize payment for raw material components of contracts based on index pricing). It can also free up the limited resources of middle market general counsels through standard clause libraries and templates.
There are other areas that middle market ERP packages overlook or skim the surface of, including procurement related analytics (and spend analysis) or T&E. But that’s a subject for another post.
Most important, middle market CFOs, CIOs and procurement/supply chain VPs should be wary of claims made by vendors about the efficacy of their procurement capability. Many talk the talk about having procurement modules. But in reality, they lack sufficient capabilities to support procurement, supply chain, HR and IT organizations across purchasing, supply chain, and vendor management activities. Compared with areas such as CRM and HR, which some (Microsoft and Workday, respectively) are much more heavily invested in, they’ve giving purchasing and supply management short shrift.