Ardent Partners has been tracking the supply management solution provider market, as well as the strategies, processes, and behaviors of Chief Procurement Officers (CPOs), their teams, and end users for many years. One of the trends that has emerged in the collection of survey responses is the rise in adoption of integrated strategic sourcing and procure-to-pay (P2P) solution suites, particularly within the past three years.
Ardent research shows that since 2014, roughly 34% of CPOs and other senior procurement leaders have indicated that their teams leverage integrated strategic sourcing suites, which include automated spend analysis, eSourcing, contract management, and supplier management applications. And roughly 40% indicated that their teams leverage integrated P2P suites, which include eProcurement and ePayables applications. Nearly a quarter of these respondents (23%) have adopted integrated strategic sourcing and P2P solution suites in lieu of best-of-breed, or one-off solutions to meet their organizational needs.
What’s so hot about solution suites, and why are so many Chief Procurement Officers and procurement teams ditching best-of-breed for them? Let’s take a look at the total cost of ownership of a best-of-breed solution and see how it compares.
Considering the Total Cost of Ownership of Best-of-Breed Solutions
Previously, if a Chief Procurement Officer wanted to deploy an automated solution (e.g., a robust spend analysis tool) for his/her team, they would consider a best-of-breed program from a single vendor. Feature functionality, cost, how well it would integrate within the legacy infrastructure (common programming, open platform, etc.), and ease of use/usability would all be selection criteria. Perhaps they would consider other factors, like whether the organization has an existing relationship with the vendor, if the application is a follow-on solution to a legacy tool, and if there are other planned technology deployments on the horizon. Ultimately, the CPO would select a single vendor to integrate a single solution within their infrastructure. But the process would not end there.
Technology integration is neither cheap nor easy. Consulting teams are often hired to help integrate the solution within the enterprise’s technology infrastructure, which can cost an additional two-to-three times the purchase price and upwards of ten times the purchase price. Then there are the “shakedown” periods where users test the tools, work out the bugs, suggest process changes and improvements, and align processes with the technology. There are costs to store, secure, troubleshoot, maintain, and upgrade the solution, which often falls to in-house IT staff and amounts to additional full-time employees (FTEs), hardware, and software costs. If users are not particularly savvy, training may be required, which may add further costs.
If Chief Procurement Officers and other procurement leaders intend to continue automating across the source-to-settle process (as has been Ardent’s position for some time now), they could undergo this process a half dozen or more times in order to completely transform their technology base. Although one-off solution deployments may appear to be less expensive and more manageable, as the purchase price may be lower than solution-suite deployments, the costs of incrementally deploying best-of-breed solutions, particularly from different vendors, can quickly add up. Chief Procurement Officers, Chief Information Officers (CIOs), and other technology evaluators need to consider whether the solution’s total cost of ownership will exceed a solution suite, and if that suite is a more cost-effective alternative than incrementally adopting best-of-breed solutions.
A Solution Suite’s Value Proposition
The functionality gap between best-of-breed solutions and solution suites has narrowed in recent years, calling into question the value of creating a patchwork of the “best” individual solutions. Why not select the best suite that fits their overall needs? After all, solution suites have progressed to the point where individual applications are roughly as functional as best-of-breed solutions. With solution suites:
- CPOs and CIOs work with one vendor – “one throat to choke” – for integrating, troubleshooting, maintaining, and upgrading the suite, which simplifies a frequently chaotic process.
- Only one consulting team may need to facilitate integration. The resulting savings on consulting fees, alone, may make solution suites a more cost-effective alternative to best-of-breed solutions in the long run.
- IT staff are better able to store, secure, and maintain one large platform consisting of multiple applications, rather than a patchwork of disparate tools spread across multiple servers and locations, each on their own architecture, secured by their own firewall and protocols; and
- Enterprises can either “rip the band aid off” and fully implement and integrate all of the applications at once; or they can do so incrementally by geography or business unit. This is particularly helpful for large, multi-national organizations that prefer a rolling implementation and user-testing period, rather than overwhelming the enterprise.
Integrated solution suites for strategic sourcing and P2P have progressed to the point where they can no longer be considered “jack of all trades but master of none.” Their functionality puts them roughly on par with best-of-breed applications, but their total cost of ownership makes them an attractive long-term solution for CPOs and procurement leaders that want to transform the totality of their operations and technology in a cost-effective manner.