ERP vs. Best-in-Class Spend Management Solutions: Making the Tough Choice

Path across labyrinth

Spend Matters welcomes this guest post from RiseNow Managing Partner Matt Stewart.

With an endless list of options in the procurement software space, how is it possible to choose between spend management solutions like Ariba, Basware, Coupa and Jaggaer? Should you even consider such options when your existing enterprise resource planning (ERP) system is capable of handling basic spend management needs?

If you’re reading this, you’ve likely considered or are considering whether best-in-class source-to-pay (S2P)/procure-to-pay (P2P) solutions are worth your time, money and effort. You’ve probably wondered how the benefits compare between the solutions, whether one far exceeds another in ROI, what is best for your end users and suppliers, and if the rate of adoption is greater with one solution over another.

Unfortunately, those considerations only scratch the surface of what is truly important when evaluating solutions to find what is best for your organization. There are many questions and apprehensions that come along with finding the right ERP or S2P/P2P solution to handle tasks such as sourcing, contracting, requisitioning, approvals, supplier management, invoicing, payments and analytics for your organization. With so much to consider, how can you be sure you’re making the right decision?

Below are a few good places to start when determining whether your ERP provider or a best-in-class spend management solution is best for your organization.

Focus on Success, Not Features and Functions  

Roughly 67% of ERP implementations fail. These failures are usually categorized as such because systems end up costing much more than originally intended, they take longer to implement than expected, they do not deliver the anticipated results — or a combination of all three.

When deciding between an ERP solution, such as Oracle, PeopleSoft or Workday, and a best-in-class spend management platform, many businesses decide based on the path of least resistance. If you already have an ERP system and your account manager and IT department are constantly telling you the ERP can do exactly what a spend management platform like Ariba, Basware, Coupa or Jaggaer can do, why would you look elsewhere? This is a common, but flawed, way of thinking.

The first step toward determining the best solution for your business is to gain agreement on what success looks like, document your existing processes/use cases, identify what processes/use cases need to be redesigned, and then evaluate your existing and potential future solutions for fit and gaps. Is your existing solution a catalyst for the change you are seeking in your organization or is it an inhibitor? If it is an inhibitor, it may be time for a change.

World-class supply chain organizations treat their end users as customers. When you ask end users to score your spend management solution, what do they say? Have you stopped asking because you already know that their feedback is poor? How is your ability to achieve your goals affected by their attitude toward your existing platform? When is the last time you conducted an end-user survey? Should focusing on improving your end-user experience be one of your top priorities for 2019? (If so, don’t forget about focusing on improving your supplier experience as well.) Is the system making it easier or more difficult for users to do the right thing? How much of your challenges are tied to broken processes compared to a system that is dated or was not made to handle your level of complexity?

Organizations that turn their focus inward (end users) and outward (suppliers) are leaving ERPs for best-in-class spend management solutions in droves.

In any position paper that top analysts have published in the past few years for P2P and sourcing, they have removed all ERP-centric S2P/P2P solutions from contention.

Oracle was removed a couple of years ago, as was PeopleSoft and SAP SRM. Workday has yet to make an appearance. Some of these solutions are in the process of being phased out, and Workday is still too young to be seen as a major player for most supply chain organizations we work with.

So shouldn’t everyone just move their S2P/P2P systems to the best-in-class spend management solutions top analysts recommend?

Well, it depends.

Some best-in-class spend management solutions were made for indirect spend and have struggled to bring direct spend into their solutions. Through acquisitions, they are quickly working to resolve these gaps.

Be careful not to run too quickly away from your ERP for a more intuitive user interface, only to run into a whole heap of new issues that your old ERP handled with ease. Traditional ERP solutions have been customized to address the complexity of direct spend, while some of today’s SaaS-based solutions are still in the process of evolving their platforms to address more than just indirect spend. Don’t exclusively look for a solution that fixes what your old system lacked, but also look to keep what you may have taken for granted.

Others are struggling with providing a complete end-to-end S2P solution that offers the depth and breadth needed by many leading sourcing teams. You may find a couple of modules that fit the bill, but don’t stop there. You have to go deeper and find the differentiator.

Aim for Adoption: Is the System Being Used the Way You Intended?

Most systems — both ERP and S2P/P2P solutions — will check the boxes in terms of functionality, but it’s important to pay attention to how those features are delivered. In particular, are features offered in a way that will encourage end users and suppliers to use the system the way you intended them to use it?

Poor system selection or implementation can result in users and suppliers not using the platform at all or — just as undesirable — not in the way it was intended to be used. Misuse or underuse can result in a tremendous amount of additional work for internal teams, such as supply chain personnel who have to spend a large amount of their time doing tactical or non-strategic activities to correct for poor adoption.

Best-in-class spend management solutions are known for creating a more consumer-based e-commerce experience than their rival ERP solutions. This shouldn’t come as a surprise because ERPs were never really built for end users. They were built for the back office and were pushed out to end users out of necessity.

Leading S2P/P2P solutions like Ariba, Basware, Coupa and Jaggaer were designed with the end user in mind. Some are better than others, but their rates of adoption for end users and suppliers far exceed that of traditional ERP solutions.

When talking about adoption, I don’t mean users logging into the platform to place all of their orders. Adoption is when every potential requester that needs to buy something goes into the system, finds what they’re looking for and requests the right item/service from the right vendor, which in turn is easily approved. Seamless user adoption makes it easy for vendors to fulfill orders and complete the process electronically so all line item details are stored in the platform for easy reporting.

I often see organizations whose systems are so difficult to use that they are unable to roll them out to every potential requester. The requester actually has to email or fill out a form and take it to a super user who must submit all requests. This manual process not only wastes a lot of time and is inefficient, but it is unnecessary.

We also see requesters abuse the free-form request because they are unable to find what they’re looking for. It turns out to be easier to just submit a free form (or a special/X file) request and let the buyer do all the work to find the right item from the right supplier. This results in buyers spending over 80% to 90% of their time completing and re-submitting requisitions. When this becomes the norm inside any organization, it’s trouble because no one wants their team spending the majority of their day on manual activities, rather than strategic, value-adding activities.

Weigh Industry-Specific and Customizable Options: What Works Best for You?

Beyond considering specific pain points and the anticipated rate of adoption, businesses must also look at ERP and spend management solutions based on their specific industry and organizational uniqueness.

Leadership teams often go for the well-known solution or the system that already exists in their business; however, for any organization with industry-specific needs or complexities — such as managing the process of direct and indirect spend, complex approval rules for capital, web forms and non-PO invoices, and the management of intricate hosted catalogs — spend management solutions will likely provide the best outcome. These systems are generally business-owned applications that are much easier than ERP solutions to configure and are no longer dependent on IT to make simple changes to approval rules, build web forms and add suppliers.

On the other hand, if nearly 100% of the spend you are managing is direct and your indirect spend is less than $25 million in one facility, it may not be worth moving because your ERP can most likely do the job. ERP systems are often the best option when there’s low amount of spend and complexity, and there is little to no need to do a lot of ongoing customization because you only have a few suppliers.

Whether you’re considering an ERP solution, such as SAP or Oracle, or a spend management solution like Coupa or Jaggaer to handle your spend management needs, it’s important that you don’t choose one over the other without doing your homework. There’s no “one size fits all” solution. Whether ERP or best-in-class, the best solution is the one that fits your industry, is built to address all of your use cases, is intuitive and easy for all users/suppliers and is configured to meet your organization’s unique needs.

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Voices (2)

  1. Fouad Darhi:

    What do you think about ivalua and determine ?
    you never talk about these solutions

  2. Pierre Mitchell:

    Matt, very practical insights. Thanks for your thoughtful contribution.

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